Washington, DC 20037 - Annual report

The Advisory Board Company is a research,

consulting, and technology services firm focused

on the health care and higher education industries.

We partner with executives and their teams

through a unique membership model and serve

a network of over 3,200 organizations.

When faced with their toughest challenges,

executives turn to us for strategic guidance

and performance improvement solutions.

2 THE ADVISORY BOARD COMPANY

Contents

The Advisory Board Company in Brief 3To Our Shareholders 7Financial Review 13

ANNUAL REPORT 2011 3

THE ADVISORY BOARD COMPANY IN BRIEF

The Advisory Board Company is a leading

service provider to the health care and education

industries, hardwiring performance improvement

through best practice research, software tools,

and consulting and management services.

Our services are provided through 50

subscription-based membership programs to

over 3,200 institutions. These include hospitals,

health systems, pharmaceutical and biotech

companies, health care insurers, medical device

companies, colleges, universities, and other

educational institutions.

Our business model is predicated on the view

that there are economies of intellect in the

sectors we serve—compelling advantages to large

numbers of key players collaborating to identify

specifi c opportunities that have the potential to

shape their industries. Through our membership

programs, we illuminate these opportunities and

provide the services and support to hardwire the

critical performance improvement required for

meaningful change.

By providing a standardized set of services, we

are able to spread our largely fi xed program

cost structure across our membership base of

participating organizations. This economic model

permits members to learn about industry best

practices and access hosted software solutions at a

fraction of the cost of customized analysis, consulting

services, or software development provided by other

business services fi rms.

We strive to provide our members with an

unparalleled level of service. Our hope is that our

members recognize our dedication to intelligent

support and, therefore, maintain a long-term

commitment to working with us.

The fi rst place the world’s great health care and education organizations turn to solve their most complex challenges.


REPRESENTATIVE ADVISORY BOARD MEMBERS

ACADEMIC MEDICAL CENTERS

Beth Israel Medical CenterBrigham and Women’s HospitalGlendale Adventist Medical CenterHospital of the University of PennsylvaniaIndiana University Medical CenterJohns Hopkins Health SystemLoyola University Health SystemsMassachusetts General HospitalMontefi ore Medical CenterMUSC Medical CenterNew York University Langone Medical CenterNorthwestern Memorial HospitalOhio State University Medical CenterRonald Reagan UCLA Medical CenterRush University Medical CenterStanford Hospital and ClinicsUCSF Medical CenterUMass Memorial HealthcareUniversity of Arkansas for Medical SciencesUniversity of Michigan Health SystemUniversity of Virginia Health SystemUniversity of Wisconsin Hospital and ClinicsWake Forest University Baptist Medical CenterYale-New Haven Hospital

TEACHING HOSPITALS

Albert Einstein Medical CenterBeaumont HospitalsDetroit Medical CenterDetroit Receiving Hospital & University Health CenterFletcher Allen Health CareGrady Health System

Harborview Medical CenterHarper University HospitalHarris County Hospital DistrictJohns Hopkins Bayview Medical CenterLenox Hill HospitalLong Beach Memorial Medical CenterOverlook HospitalParkland Health and Hospital SystemQueens Hospital CenterRhode Island HospitalSaint Mary’s HospitalScott and White Memorial HospitalSinai Hospital of BaltimoreSt. Luke’s Episcopal HospitalSt. Luke’s-Roosevelt Hospital CenterSt. Vincent HealthcareUniversity Health Systems of Eastern Carolina

MAJOR HEALTH SYSTEMS

Adventist HealthAdvocate Health CareArdent Health ServicesAtlantic HealthAurora Health CareBaptist Health SystemBaylor Health Care SystemBJC HealthcareBon Secours Health System, Inc.Carilion ClinicCatholic Health Initiatives - Corporate Offi ceCatholic Healthcare PartnersCatholic Healthcare WestCedars-Sinai Medical Center

Clarian Health Partners, Inc.Continuum Health PartnersFairview Health ServicesHCA-The Healthcare CompanyHealthEast Care SystemHenry Ford Health SystemIASIS Healthcare CorporationIntermountain Health Care, Inc.Legacy Health SystemNew York City Health & Hospitals CorporationOSF Healthcare SystemPartners HealthCareProvidence ServicesScripps HealthSharp HealthCareSSM Health Care Corporate Offi ceSutter HealthSwedish Health ServicesTenet Healthcare CorporationTexas Health ResourcesTrinity HealthUPMCVeterans Integrated Health Networks

CLINICS AND SPECIALTY HOSPITALS

Baptist Memorial Hospital for WomenChildren’s Healthcare of AtlantaChildren’s Hospital of Los AngelesChildren’s Medical Center of DallasChildren’s National Medical CenterCleveland Clinic FoundationDana-Farber Cancer Institute


Gillette Children’s Specialty HealthcareHospital for Special SurgeryKaiser Foundation Hospitals Corporate Offi cesKarmanos Cancer InstituteMayo FoundationMemorial Sloan-Kettering Cancer CenterMethodist Specialty and Transplant HospitalMoffi tt Cancer CenterNemoursOchsner Clinic FoundationRML Specialty HospitalRoswell Park Cancer InstituteUniversity of Texas MD Anderson Cancer CenterUniversity Specialty Hospital

COMMUNITY HOSPITALS

Battle Creek Health SystemCape Cod HospitalCape Fear Valley Health SystemCharleston Area Medical CenterDanbury HospitalDCH Regional Medical CenterEast Jeff erson General HospitalEastern Maine Medical CenterGratiot Medical CenterHeartland Regional Medical CenterHuntington Memorial HospitalLancaster General HospitalLutheran HospitalMaimonides Medical CenterMaine Medical CenterMedical Center of Central GeorgiaMississippi Baptist Health System

Northside HospitalNorwalk HospitalPlatte Valley Medical CenterThe Reading Hospital & Medical CenterResurrection Medical CenterRural Wisconsin Health CooperativeSaint Joseph Regional Medical CenterSibley Memorial HospitalSt. Luke’s HospitalSt. Luke’s Regional Medical CenterSt. Mary’s Regional Medical CenterTucson Medical CenterWest Georgia Health System

HEALTH CARE CORPORATIONS

Abbott VascularAetna Life Insurance CompanyAptium OncologyBoston Scientifi c CorporationBristol-Myers SquibbCalifornia HealthCare FoundationCardinal Health Inc.Covidien Ltd.e+ Cancer CareEdwards Lifesciences CorporationEli Lilly & CompanyGE Healthcare Integrated IT Solutions GroupHammes CompanyHewlett-Packard CompanyHill-RomHOK Group, Inc.Kaiser PermanenteKimberly-Clark Corporation

McKesson CorporationMedtronic, Inc.Microsoft Health Solutions GroupNovartis Pharmaceuticals CorporationOrtho-McNeil PharmaceuticalPhilips HealthcareSanofi -Aventis PharmaceuticalsSheridan Healthcare, Inc.Siemens Medical Solutions USASmithGroupStryker Orthopaedics Mahwah CampusVarian Medical Systems

UNIVERSITIES

Baylor UniversityCalifornia Institute of TechnologyCarnegie Mellon UniversityDuke UniversityGeorgetown UniversityIndiana UniversityKent State UniversityNew York UniversityOregon State UniversitySyracuse UniversityUniversity of California, BerkeleyUniversity of MiamiUniversity of NebraskaUniversity of UtahVanderbilt UniversityVirginia Polytechnic Institute & State UniversityWake Forest UniversityWashington UniversityWilliam Marsh Rice University


1 Adjusted results are not presented in accordance with accounting principles generally accepted in the United States (GAAP). See page 15 for a reconciliation of GAAP to adjusted results.

2 FY07, FY08, FY09 and FY11. Adjusted Cash Flow from Operations is not a GAAP measure and includes $7.0 million, $6.0 million, $0.3 million, and $2.6 million respectively, in tax benefi ts associated with the exercise of employee stock options recorded under GAAP as cash fl ow from fi nancing activities.

Adjusted Cash Flow from Operations2

for Fiscal Years Ending March 31(In Millions)

Adjusted Earnings per Diluted Share1

for Fiscal Years Ending March 31

Annual Revenuesfor Fiscal Years Ending March 31(In Millions)

Contract Value per Member as of March 31(In Thousands)

‘07

$189.8

‘08

$219.0

‘09

$230.4

‘10

$239.3

‘11

$290.2

‘07

$57.2

‘08

$66.3

‘09

$40.0

‘10

$46.7

‘11

$53.0

‘07

$1.83

‘08

$2.18

‘09

$1.86

‘10

$1.66

‘11

$1.73

‘07

$75.2

‘08

$83.6

‘09

$81.9

‘10

$87.5

‘11

$95.6


TO OUR SHAREHOLDERS

“Our outstanding member renewal performance of 91% for the year—the highest level since 2005—affi rms both our product quality and member satisfaction, and is evidence of our strong platform for future growth.”

In a year that has brought continued

change and complexity to the

industries we serve, I am proud

to report that The Advisory Board

Company remains the trusted

partner to health care and education

organizations, delivering exceptional value through

our research programs, software-based programs, and

management and advisory services programs. As our

customers—our members—strive to simultaneously

improve current performance and prepare for future

structural industry changes, we have continued to

innovate to meet their needs. Our outstanding member

renewal performance of 91% for the year—the highest

level since 2005—affi rms both our product quality and

member satisfaction, and is evidence of our strong

platform for future growth.

A key reason we are able to meet the wide array of

member needs in this complex time is the robust

portfolio of products and services we have invested in

building over the last several years. In today’s dynamic

market, members are asking that we not only drive

insight around new topics, such as

value-based purchasing and meaningful use, but also

work with them in deeper, more comprehensive ways,

off ering software and services to partner with them

in the transformation the market demands. As such,

we launched fi ve new programs this year to bring our

total number to 50, through which we now serve a total

membership of over 3,200 institutions.

Having seized the opportunity off ered by this unique

environment to expand and deepen our member

relationships, it is gratifying to see this approach bear

fruit. Members’ sustained, urgent demand for our

products and services is evidenced by both our 21%

revenue growth and by our 19% growth in contract

value over last year at this time. Through strong

fi nancial management, we were able to achieve these

results while also maintaining a solid balance sheet and

strong cash position, returning cash to shareholders

through our share repurchase plan,

and continuing to make important investments in

future growth.

In all, our member relationships, comprehensive

portfolio of products and services, and ongoing

value-focused innovation position us extremely well

for the future. As we continue to expand our reach and

impact across the industries we serve,

I remain confi dent in—and excited about—our

future prospects.

A Virtuous Cycle of Expanding Member Impact

Our long-standing focus on delivering substantial

member impact continues to guide all our work and

innovation, and has been critical to our success in a

complex environment. As we deepen and expand our

relationships with members, our ability to infl ect their

performance increases commensurately, thereby

enhancing their trust in—and reliance on—our products

and services. We have always enjoyed this virtuous

cycle of partnership, results, and growing relationships.

As our own capabilities grow, this cycle becomes even

more powerful.

For example, one health system in the Northeast has

modeled this cycle and expanded its work with us over

the last several years. Now participating in 14 of our

programs, the institution not only is deeply engaged

with our research programs


(with more than 250 individuals at the hospital

regularly using our online resources, attending our

meetings, and/or participating in our teleconferences),

but also is a keen member of our Crimson physician

practice management program, having documented

both improvement in key quality measures and

$2.9 million in savings as a result of its participation.

Our importance to this health system’s top physician

alignment initiatives was most recently underscored

by the executives’ decision to work with us on a

new talent development project with fi fty of their

physicians, an undertaking that the institution’s chief

medical offi cer considers a key component of their

accountable care strategy.

In another example, a 13-hospital system in the

Midwest has grown its Advisory Board portfolio

to eight programs comprising both research and

software memberships. Having used our revenue cycle

performance program to decrease A/R days by 24%

in 2009 and increase POS cash collection by 50% in

2010, this institution’s leadership team now views us as

its strategic partner in its revenue cycle work. Actively

partnering with our team on issues including shared

savings, ICD-10, and new product development, the

CFO is involved in every step of our forward-thinking

agenda for the revenue cycle.

It is extremely fulfi lling to see the impact our work

provides for our members and to know that every

success strengthens our member relationships. Each

story illustrates how our expanded products and

services have positioned us to meet member requests

and deliver value where it is most needed. Together,

on a macro level, the results are stunning: we have

documented—through individual case studies signed

off by our members—cumulative member value

totaling over $1.5 billion over just the last four years.

YEARS OF EXPERIENCE

25

INDUSTRY LEADERS SERVED

125,000

U.S. INPATIENT ADMISSIONS FLOWING THROUGH OUR TECHNOLOGY PROGRAMS

33%

USER SESSIONS ANNUALLY OF OUR SOFTWARE TOOLS

1 MILLION

PROGRAMS

50

MEMBER INSTITUTIONS

3,200

EMPLOYEES

1,600


Increasing Breadth and Depth of Off erings

A key contributing factor in delivering increasing value

to our members has been our continued investment in

evolving and improving the ways we serve them. First,

through innovations across our research programs—

including online data, implementation guides, audit

toolkits, and customizable forecasting and decision-

support tools—we have enhanced the usability of our

research and the ease with which members can apply

our insights. The feedback on these delivery channels

for our syndicated research has been outstanding, and

we are pleased at the impact they have had.

The addition of software-based memberships

several years ago opened a new method of delivering

outstanding member impact at scalable economics.

These programs provide members with hosted,

web-based access to data from their own institutions

(drawing from disparate source systems) in a new,

more accessible, and more actionable way, and

complement it with the insights of our traditional best

practice research. This unique marriage of intelligently

designed, industry-specifi c business intelligence and

software tools with research-proven best practices has

proven to be particularly impactful, and, by embedding

best practice into daily workfl ow, creates a “pull”

dynamic, drawing key players at member institutions

to our resources and further strengthening our

relationships with members.

Through best practice installation, we have long

worked with individual institutions on targeted

initiatives to improve performance. Recently, we

have made investments to off er even deeper levels

of services and value delivery to our members.

The addition of hospital-physician integration and

physician practice expertise through our acquisition

of Southwind has enabled us to provide strategic

and operational support services to health system

executives responsible for aligning the interests and

behavior of physicians in order to achieve key clinical

quality and fi nancial performance goals.

Perhaps most exciting has been our ability to work

with members across our expanded portfolio of

products and services to off er members full solutions

in their most important strategic terrains. A new

breed of engagements comprising the relevant assets

from our research, software-based, and management

and advisory services programs is allowing us to

work more closely with members, off er a one-stop

shop for their needs, and drive greater performance

improvement at their institutions. Given member

reaction and the strong impact these engagements

drive, we expect to continue to innovate and off er

more cross-program solutions engagements in key

terrains going forward.

Maintaining Our Growth Trajectory

In fi scal year 2011, we continued the successful

execution of our growth strategy. I am proud to report

that our revenue and contract value performance

affi rmed our decision to invest in order to take

advantage of unique opportunities of the current

market. The new products we launched last year have

proven to off er superior value for our members, and,

with strong market interest, they continue to gain

additional scale this year. Further, we also launched

fi ve impactful new programs in the past year to meet

member demand.

This year’s three new software program launches

were focused in highly leveraged areas. First, in the

revenue cycle terrain, we launched the Clinical Denials

Prevention Program, which hardwires a best practice

approach to patient precertifi cation, automating

the authorization, retrieval, and submission process

in order to prevent related denials. Our revenue

cycle portfolio continues to be both a critical area

for our members and a focus for our new product

development work.

Our other two new software program launches,

Employee Health Performance Program and Crimson

Care Registry Program, both provide tools critical to

success today and under future value-based payment

structures. Crimson Care Registry helps physicians

improve patient care by providing actionable and

customizable prompts during care delivery, capturing


clinical information, and aligning physician quality

across the ambulatory setting. The Employee Health

Performance Program provides hospitals with the

key tools necessary for improving care while reducing

waste and avoidable benefi ts costs for their employee

populations. Both tools help improve outcomes,

reduce costs of care, and build a strong track record

to help member health systems succeed under

new payment models that entail the assumption

of additional risk. All three of this year’s software-

based memberships are off to an outstanding start,

as are this year’s two new research programs, which

serve hospitals’ IT function and Community College

Executives, respectively.

Our Community College program marks our fourth

program to serve the higher education vertical and

enhances the strong portfolio we have built in that

space over the past four years. As we increase our

footprint in this sector, we are excited by the issue

sets, our strong base of members, our ability to

infl ect performance in key areas, and the potential

for future expansion off the foundation we are

building today.

Over the last several years, we have begun to

incorporate selective acquisitions into our growth

strategy. Our regular course of research surfaces

key areas of member need, as well as innovative and

distinctive best practice solutions. Over time, there

have been a handful of companies whose products

and services stand apart for being truly high-impact,

notably: Crimson, Southwind, Concuity, and Cielo.

Each of these met our rigorous acquisition criteria—

including clear fi t with long-term growth strategy,

important member issue, complementary technology

platform, and attractive economics—and have proven

to be very strong additions to our portfolio. Looking

ahead, we anticipate continuing to make select,

targeted acquisitions to supplement our organic

growth strategy.

On a more macro level, it is clear that our new

capabilities have been key to driving strong top-line

growth. Today, our software memberships comprise

more than 50% of our total contract value

(up from less than 5% six years ago), with over 1,000

organizations participating, representing over 1,500

memberships. It is exciting to cross these important

milestones and see our growth strategy continue to

bear fruit.

With the many opportunities before us to deepen

our work with our members, we believe that moving

fast to do so in today’s unique market will provide

us important advantages and scale going forward.

Given that, we will continue to target four to fi ve new

program launches per year, drawn from our new

product pipeline of more than 25 new programs in

development. Looking ahead, we are well positioned

for future growth due to our robust new product

development machine, strong balance sheet and

cash fl ow, expanding addressable market, committed

talent base, and unique business model. We remain

squarely focused on continuing our growth path as

a scalable, high-growth company that provides

world-class programs and services to our members.

Delivering Strong Financial Results

Our fi nancial results across all key metrics—income

statement, contract value, cash fl ow, and balance

sheet—refl ect our strong performance over the fi scal

year. Our outstanding 91% overall renewal rate helped

drive both our 21% revenue growth and our 19%

contract value growth. In addition, our membership

base grew nearly 9% to 3,243 institutions, and

average contract value per member increased 9%

to $95,606. Our cash fl ow, which exceeded two

times net income for the year, has allowed us to fund

growth initiatives while maintaining a strong balance

sheet with approximately $7 per share in cash and

marketable securities, and no debt.

Looking ahead with the benefi t of our model’s strong

visibility, I am pleased that we project continued

rapid growth for the 2011 calendar year, along with

strong earnings growth and margin expansion.

We are very excited to be delivering against our

traditional formula of strong top-line growth and

margin expansion with continued strong cash fl ow—

an outstanding combination that allows us to deliver

robust earnings while also investing in future growth.


Cultivating Our Talent Asset

No single factor is as important to our future

prospects as our 1,600 employees whose

engagement, drive, and remarkable expertise

made possible our achievements this year. Their

unwavering commitment to excellence and steadfast

dedication to serving our members are critical to our

outstanding products and services, our continuous

innovation, and, most importantly, our tremendous

member impact.

As such, it is a top fi rm priority to nurture and

cultivate talent. We are aware that by attracting,

engaging, developing, and retaining superior staff

at all levels of the organization, we are serving as

stewards of The Advisory Board Company’s most

critical asset. Because of our exceptional culture,

mission, and investment in engaging and developing

our employees, we are able to report that our

employee base hails from the best undergraduate

and graduate programs, technology outfi ts,

consulting fi rms, and health care institutions in

the world. Our strong success in recruitment and

retention means that we remain an employer of

choice for star talent in both the local and national

job market.

With fi rm leaders who are passionate about

developing their teams, growing the business, and

delivering member value, as well as employees

throughout the organization who aspire to innovation

and excellence, there can be no doubt as to our ability

to make meaningful improvements to our members’

organizations and, more broadly, to the industries

we serve.

Closing Thoughts

As I close this letter, I refl ect on the fact that this is

our fi rst annual report with our new logo—changed

to refl ect both the evolution of our business and

the transformative changes occurring in the health

care and higher education industries. The mark is a

stylized “A” inspired by one of Thomas Jeff erson’s

most visionary inventions, the revolving bookstand;

holding fi ve books open at adjustable angles to

allow the reader to consult multiple works at

once, the revolving bookstand was an innovative

early “database.” Our new logo symbolizes our

commitment to thought leadership and innovation,

as well as information and data excellence, and

refl ects the many ways that we have evolved to

respond to members’ changing needs.

With all our innovation and change, it remains The

Advisory Board Company’s great privilege to serve as

the trusted partner to our members and my personal

privilege to lead a team of extremely talented

individuals who demonstrate unfl agging commitment

to advancing our mission. I continue to be confi dent

in our future prospects and our ability to eff ect

meaningful positive change in the health care and

education industries. I close with my appreciation for

your interest and support.

Robert MusslewhiteChief Executive Offi cer

FISCAL YEAR 2011Financial Review


SELECTED FINANCIAL DATAThe Advisory Board Company and Subsidiaries

The following table sets forth selected financial and operating data. The selected financial data presented below as of March 31, 2007, 2008, 2009, 2010, and 2011 and for the five fiscal years in the period ended March 31, 2011 have been derived from our financial statements which have been audited by Ernst & Young LLP, an independent registered public accounting firm. You should read the selected financial data presented below in conjunction with our consolidated financial statements, the Notes to the consolidated financial statements, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report.

Year Ended March 31,

(In thousands except per share amounts) 2007 2008 2009 2010 2011

Statements of Income Data:Revenue $ 189,843 $ 218,971 $ 230,360 $ 239,323 $ 290,248

Costs and expenses: 90,129 102,291 116,556 124,412 154,395 Cost of services Member relations and marketing 40,204 45,890 52,292 53,928 65,069 General and administrative 22,815 25,269 26,725 32,133 38,225 Depreciation and amortization of property

and equipment 2,070 3,589 5,647 6,391 5,971 Write-off of capitalized software — — — 7,397 —

Total costs and expenses 155,218 177,039 201,220 224,261 263,660

Income from operations 34,625 41,932 29,140 15,062 26,588Other income, net 6,819 6,142 2,445 2,340 1,866

Income before income taxes 41,444 48,074 31,585 17,402 28,454Provision for income taxes (14,049) (16,012) (10,117) (5,969) (9,930)

Net income $ 27,395 $ 32,062 $ 21,468 $ 11,433 $ 18,524

Earnings per share: Net income per share—basic $ 1.46 $ 1.78 $ 1.31 $ 0.74 $ 1.18 Net income per share—diluted $ 1.41 $ 1.72 $ 1.30 $ 0.73 $ 1.13Weighted average number of shares outstanding: Basic 18,714 17,999 16,441 15,515 15,733 Diluted 19,448 18,635 16,560 16,692 16,415


(In thousands except per share amounts) (Unaudited) 2009 2010 2011

Stock-based compensation expense included in Statement of Income:Costs and expenses: Cost of services $ 4,273 $ 3,930 $ 2,764 Member relations and marketing 2,436 2,248 1,663 General and administrative 5,738 5,974 4,366

Total costs and expenses 12,447 12,152 8,793

Income from operations (12,447) (12,152) (8,793)

Net income $ (8,464) $ (7,984) $ (5,725)

Impact on earnings per share: Net income per share—diluted $ (0.51) $ (0.51) $ (0.35)


March 31,

(In thousands) 2007 2008 2009 2010 2011

Balance Sheet Data:Cash and cash equivalents $ 13,195 $ 17,907 $ 23,746 $ 61,238 $ 30,378Marketable securities 146,168 132,158 70,103 51,682 86,179Working capital (deficit) (35,018) (47,371) (36,640) (22,027) (66,939)Total assets 286,174 305,114 316,258 386,772 491,188Deferred revenue 116,994 144,147 170,478 208,402 266,015Total stockholders’ equity 138,464 122,529 98,899 111,815 148,592

March 31,

(Unaudited) 2007 2008 2009 2010 2011

Other Operating Data:Membership programs offered 32 37 41 45 50Total members 2,662 2,761 2,817 2,985 3,243Member institution renewal rate(1) 89% 90% 88% 89% 91%Contract value (in thousands)(2) $ 200,094 $ 230,806 $ 230,769 $ 261,110 $ 310,051Contract value per member(3) $ 75,167 $ 83,595 $ 81,920 $ 87,474 $ 95,606

March 31,

(In thousands) 2007 2008 2009 2010 2011

Reconciliation of GAAP to adjusted results(4):Income from operations as reported $ 34,625 $ 41,932 $ 29,140 $ 15,062 $ 26,588Amortization of acquisition-related intangibles 172 172 1,151 1,642 4,489Acquisition charges — — — 1,123 408Fair Value Adjustment of Southwind Earn-out Liability — — — — 1,500Write-off of capitalized software — — — 7,397 —Option Cancellation charge — — — 1,937 —Share-based compensation charge 12,355 12,563 12,448 10,216 8,792

Adjusted income from operations 47,152 54,667 42,739 37,377 41,777Other income, net 6,819 6,142 2,445 2,340 1,866

Adjusted income before taxes 53,971 60,809 45,184 39,717 43,643Adjusted provision for income taxes (18,296) (20,249) (14,459) (13,623) (15,231)

Adjusted net income 35,675 40,560 30,725 26,094 28,412

Adjusted earnings per share: Diluted $ 1.83 $ 2.18 $ 1.86 $ 1.66 $ 1.73Adjusted diluted weighted average common shares outstanding 19,448 18,635 16,560 15,692 16,415

(1) The percentage of member institutions at the beginning of a fiscal year that hold one or more memberships in any of our pro-

grams at the beginning of the next fiscal year, adjusted to reflect mergers, acquisitions, or different affiliations of members that

result in changes of control over individual institutions.

(2) The aggregate annualized revenue attributed to all agreements in effect at a given point in time, without regard to the initial term

or remaining duration of any such agreement.

(3) Total contract value divided by the number of members.

(4) Our reported effective tax rates for each of the five years in the period ended fiscal 2011 were 33.9%, 33.3%, 32.0%, 34.3% and

34.9%, respectively. In February 2006, we received notification from the Office of Tax and Revenue of the District of Columbia

that we had been certified effective January 1, 2004, as a Qualified High Technology Company (“QHTC”) under the New E-Conomy

Transformation Act of 2000, as amended. This certification has the effect of reducing our statutory income tax rate as well as

providing other tax benefits.


STOCK PERFORMANCE GRAPHThe Advisory Board Company and Subsidiaries

The Advisory Board Company S&P 500 IndexTotal Returns

Russell 2000 Index Nasdaq Composite IndexTotal Returns

March 31, 2006

March 31, 2007

March 31, 2008

March 31, 2009

March 31, 2010

March 31, 2011

$100

$91

$99

$30

$57

$92

The Advisory Board Company

Russell2000 Index

$100

$106

$92

$58

$94

$118

$100

$112

$106

$66

$98

$114

S&P 500Index

$100

$104

$99

$67

$106

$124

NasdaqComposite Index

3.31.2006 3.31.2007 3.31.2008 3.31.2009 3.31.2010 3.31.2011

Comparison of Cumulative Total Return Among The Advisory Board Company, the S&P 500 Index, the Russell 2000 Index, and the Nasdaq Composite Index

Comparison of Five-Year Cumulative Total Return, Assumes Initial Investment of $100

The graph below compares the cumulative total stockholder return on our common stock during the five-year period from March 31, 2006, through March 31, 2011, with the cumulative total return on the S&P 500 Index, the Russell 2000 Index, and the Nasdaq Composite Index for the same period. The comparison assumes that $100 was invested on March 31, 2006, in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock.


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe Advisory Board Company and Subsidiaries

OVERVIEW

We provide best practices research and analysis, business intelligence and software tools, and management and advisory services to approximately 3,200 organizations, including hospitals, health systems, pharmaceutical and biotech companies, health care insurers, medical device companies, colleges, universities, and other educational institutions through 50 discrete programs. Members of each program typically are charged a fixed fee and have access to an integrated set of services that may include best practice research studies, executive education seminars, customized research briefs, web-based access to the program’s content database, and software tools.

Our membership business model allows us to create value for our members by providing proven solutions to common and complex problems as well as quality content on a broad set of relevant issues. Our growth has been driven by strong renewal rates, ongoing addition of new memberships in our existing programs, continued new program launches, acquisition activity, and continued annual price increases. Our member institution renewal rate was 88%, 89%, and 91% for fiscal 2009, 2010, and 2011, respectively. We believe high renewal rates are a reflection of our members’ recognition of the value they derive from participating in our programs. Our revenue grew 21.3% in fiscal 2011 over fiscal 2010 and grew 3.9% in fiscal 2009 over fiscal 2008. Our contract value increased 18.7% to $310.1 million as of March 31, 2011 from March 31, 2010 and increased 13.1% to $261.1 million as of March 31, 2010 from March 31, 2009. We define contract value as the aggregate annualized revenue attributed to all agreements in effect at a given point in time, without regard to the initial term or remaining duration of any such agreement.

As of March 31, 2011, memberships in 40 of our programs were renewable at the end of their membership contract term. Contract terms for these memberships generally run one, two, or three years. Our other ten programs provide management and advisory services. Memberships in these ten programs help members accelerate the adoption of best practices profiled in our research studies and are not individually renewable. As of March 31, 2011, more than 85% of our contract value was renewable. In each of our programs, we generally invoice and collect fees in advance of accrual revenue.

Our operating costs and expenses consist of cost of services, member relations and marketing, general and admin-istrative expenses, depreciation and amortization of property and equipment expenses, and, in fiscal 2010, the write-off of capitalized software. Cost of services includes the costs associated with the production and delivery of our products and services, consisting of compensation for research personnel, in-house faculty, software developers, and consultants; the organization and delivery of membership meetings, teleconferences, and other events; production of published materials; technology license fees; and costs of developing and supporting our web-based content and business intelligence and software tools. Member relations and marketing includes the costs of acquiring new members and the costs of account management, consisting of compensation, including sales incentives; travel and entertainment expenses; training of personnel; sales and marketing materials; and associated support services. General and administrative expenses include the costs of human resources and recruiting, finance and accounting, management information systems, facilities management, new program development, and other administrative functions. Depreciation and amortization of property and equipment expense includes the cost of depreciation of our property and equipment, amortization of costs associated with the development of software and tools that are offered as part of certain of our membership programs, and amortization of acquired developed technology. Write-off of capitalized software in fiscal 2010 includes the impairment charge taken to write-down internally developed capitalized software balances to their current fair value. Included in our operating costs for each year presented are stock-based compensation expenses and expenses representing additional payroll taxes for compensation expense as a result of the taxable income employees recognized upon the exercise of common stock options and the vesting of restricted stock units.


NON-GAAP FINANCIAL PRESENTATION

This management’s discussion and analysis presents supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or “GAAP.” These financial measures, which are considered “non-GAAP financial measures” under SEC rules, are referred to as adjusted EBITDA, adjusted net income, and non-GAAP earnings per diluted share. See “Non-GAAP Financial Measures” below for information about these non-GAAP financial measures, including our reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure.

RESULTS OF OPERATIONS

The first table below shows statements of income data expressed as a percentage of revenue for the periods indicated. The second table shows the stock-based compensation expense included in the statements of income data expressed as a percentage of revenue for the periods indicated:


2009 2010 2011

Revenue 100.0% 100.0% 100.0%

Costs and expenses:

Cost of services 50.6 52.0 53.2

Member relations and marketing 22.7 22.5 22.4

General and administrative 11.6 13.4 13.2

Depreciation and amortization of property and equipment 2.5 2.7 2.1

Write-off of capitalized software — 3.1 —

Total costs and expenses 87.4 93.7 90.9

Income from operations 12.6 6.3 9.1

Other income, net 1.1 1.0 0.6

Income before provision for income taxes 13.7 7.3 9.7

Provision for income taxes (4.4) (2.5) (3.3)

Net income 9.3% 4.8% 6.4%


2009 2010 2011

Stock-based compensation expense included in:

Costs and expenses:

Cost of services 1.9% 1.6% 1.0%

Member relations and marketing 1.1 1.0 0.6

General and administrative 2.5 2.5 1.5

Depreciation — — —

Total costs and expenses 5.5 5.1 3.1

Net income (3.7%) (3.3%) (2.0%)

FISCAL YEARS ENDED MARCH 31, 2009, 2010, AND 2011

OverviewNet income decreased 46.7% from $21.5 million in fiscal 2009 to $11.4 million in fiscal 2010, and increased 62.0% to $18.5 million in fiscal 2011. The decrease in net income during fiscal 2010 was primarily due to two non-cash charges and acquisition-related costs incurred during fiscal 2010, partially offset by revenue growth of 3.9%. During fiscal 2010, certain members of senior management and the Board of Directors voluntarily surrendered for cancellation a total of 830,025 options that had exercise prices between $51.56 per share and $60.60 per share. This cancellation led to a non-cash charge during the year of $1.9 million. In addition, we recognized a $7.4 million non-cash charge during fiscal 2010 resulting from the write-off of capitalized software. The increase in net income during fiscal 2011 was primarily attributable to increased revenue, as well as the absence of the two non-cash charges in 2010 described above, and was partially offset by costs associated with the launch of new programs and an increase in the number of new sales teams.


Adjusted EBITDAAdjusted EBITDA decreased 8.8% from $48.0 million in fiscal 2009 to $43.8 million in fiscal 2010, and increased 9.6% to $48.0 million in fiscal 2011. The decrease in adjusted EBITDA during fiscal 2010 was primarily attributable to personnel, meetings, and deliverable costs incurred to support the expansion of new programs, including Southwind Health Partners, L.L.C. and Southwind Navigator, LLC, which we refer together as “Southwind,” and an increase in new product development costs, partially offset by revenue growth of 3.9%. The increase in adjusted EBITDA during fiscal 2011 was primarily due to increased revenue, which was partially offset by costs associated with the launch of new programs and an increase in the number of new sales teams.

RevenueRevenue increased 3.9% from $230.3 million in fiscal 2009 to $239.3 million in fiscal 2010, and increased 21.3% to $290.2 million in fiscal 2011. Our contract value increased from $230.8 million as of March 31, 2009 to $261.1 million as of March 31, 2010, and increased to $310.1 million as of March 31, 2011.

The increase in revenue in fiscal 2010 over fiscal 2009 was primarily due to the cross-selling of existing programs to existing members, the introduction and expansion of new programs, the addition of new member organizations, the acquisition of substantially all of the assets of Southwind and, to a lesser degree, price increases. The increase in revenue in fiscal 2011 over fiscal 2010 was primarily due to cross-selling existing programs to existing members, the introduction and expansion of new programs, the addition of new member organizations, the acquisition of Concuity Services, Inc., or Concuity, and a full fiscal year of revenue from Southwind.

We offered 41 membership programs as of March 31, 2009, 45 as of March 31, 2010, and 50 as of March 31, 2011. Our membership base consisted of 2,817 member institutions as of March 31, 2009, 2,985 member institutions as of March 31, 2010, and 3,243 member institutions as of March 31, 2011. Our average contract value per member was $81,920 for fiscal 2009, compared to $87,474 for fiscal 2010 and $95,606 for fiscal 2011.

Cost of servicesCost of services increased 6.7% from $116.6 million in fiscal 2009 to $124.4 million in fiscal 2010, and increased 24.1% to $154.4 million in fiscal 2011. As a percentage of revenue, cost of services was 50.6% for fiscal 2009, 52.0% for fiscal 2010, and 53.2% for fiscal 2011. The increase of $7.8 million for fiscal 2010 was primarily due to $8.7 million of personnel, meetings, and deliverable costs incurred to support the expansion of new programs, including Southwind, offset by reductions in technology consultant fees associated with our business intelligence and software tools, and by reductions in travel expense. The increase of $30.0 million for fiscal 2011 was primarily attributable to an increase in personnel and other deliverable costs from new programs, including the acquisitions of Southwind and Concuity.

Member relations and marketingMember relations and marketing expense increased 3.1% from $52.3 million in fiscal 2009 to $53.9 million in fiscal 2010, and increased 20.7% to $65.1 million in fiscal 2011. As a percentage of revenue, member relations and marketing expense in fiscal 2009, 2010, and 2011 was 22.7%, 22.5%, and 22.4%, respectively. The total dollar increases in member relations and marketing expense over each of the fiscal years were primarily due to increases in sales staff and related travel and other associated costs, as we had an average of 112, 116, and 135 new business development teams during fiscal 2009, 2010, and 2011, respectively, as well as increases in member relations personnel and related costs required to serve the expanding membership base.

General and administrativeGeneral and administrative expense increased 20.2% from $26.7 million in fiscal 2009 to $32.1 million in fiscal 2010, and increased 19.0% to $38.2 million in fiscal 2011. As a percentage of revenue, general and administrative expense in fiscal 2009, 2010, and 2011 was 11.6%, 13.4%, and 13.2%, respectively. The increase of $5.4 million in general and administrative costs for fiscal 2010 was primarily due to $1.6 million in transaction costs relating to the acquisitions of Southwind and Concuity, an accelerated stock-based compensation charge of $1.1 million in connection with the voluntary surrender of certain stock options (as described in Note 11, “Stock-based compensation” of our consolidated financial statements appearing elsewhere in this report), an increase in new product development costs, and to a lesser extent increases in information systems and finance personnel. The increase of $6.1 million in general and administrative costs for fiscal 2011 was primarily due to an increase of $2.1 million increase in direct recruitment expenses, as well as $2.3 million increase in our administrative overhead departments to support our growing employee base. As of March 31, 2011, we had approximately 1,600 employees compared to 1,100 as of March 31, 2010.


Depreciation and amortization of property and equipmentDepreciation expense increased from $5.6 million, or 2.5% of revenue, in fiscal 2009, to $6.4 million, or 2.7% of revenue, in fiscal 2010, and decreased to $6.0 million, or 2.1% of revenue, in fiscal 2011. The increase in fiscal 2010 was primarily due to increased amortization expense from developed capitalized internal-use software tools of $0.4 million as well as increased depreciation expense related to the expansion of additional floors in our headquarters facility under the terms of our lease agreement. The decrease in fiscal 2011 was primarily attributable to decreased amortization expense from developed capitalized internal-use software tools following a write-off of capitalized software during fiscal 2010.

Write-off of capitalized softwareDuring fiscal 2010, we recognized an impairment charge on capitalized internally developed software assets of $7.4 million with no comparable expense in the prior or subsequent fiscal year.

Other income, netOther income, net decreased from $2.4 million in fiscal 2009 to $2.3 million in fiscal 2010, and to $1.9 million in fiscal 2011. Other income, net consisted of interest income of $3.5 million and a foreign exchange rate loss of $1.1 million in fiscal 2009, interest income of $2.3 million and a foreign exchange rate gain of $46,000 in fiscal 2010, and interest income of $1.7 million and a foreign exchange rate gain of $0.2 million in fiscal 2011. Interest income decreased from $3.5 million in fiscal 2009 to $2.3 million in fiscal 2010, and to $1.7 million in fiscal 2011 due to lower interest rates and lower average invested cash balances resulting from the acquisitions of Crimson Software, Inc., Southwind, and Concuity in fiscal 2009, 2010, and 2011, respectively. During fiscal 2009, 2010, and 2011, we recognized a foreign exchange loss of $1.1 million and foreign exchange gains of $46,000 and $157,000, respectively, due to the effect of fluctuating currency rates on our receivable balances from international members.

Provision for income taxesOur provision for income taxes was $10.1 million, $6.0 million, and $9.9 million in fiscal 2009, 2010, and 2011, respectively. Our effective tax rate in fiscal 2009, 2010, and 2011 was 32.0%, 34.3%, and 34.9%, respectively. The increase in our effective tax rate in fiscal 2010 was due primarily to an increase in our Washington, D.C. statutory income tax rate from 0% to 6% as of January 1, 2009 in accordance with the New E-conomy Transformation Act of 2000. The increase in our effective tax rate in fiscal 2011 was primarily due to the effect that higher estimated net income for fiscal year 2011, when compared to fiscal year 2010, has on our effective rate when compared to the fixed nature of our Washington D.C. tax credits that we receive under that Act, and to a lesser degree, our lower tax-exempt interest income in fiscal 2011.

Stock-based compensation expenseWe recognized the following stock-based compensation expense in the consolidated statements of income line items for stock options and RSUs issued under our stock incentive plans and for shares issued under our employee stock purchase plan for the years ending March 31, 2009, 2010, and 2011 (in thousands except per share amounts):


(Unaudited) 2009 2010 2011


Costs and expenses:

Cost of services $ 4,273 $ 3,930 $ 2,763

Member relations and marketing 2,436 2,248 1,663

General and administrative 5,738 5,974 4,366

Depreciation and amortization — — —



Net income $ (8,464) $ (7,984) $ (5,725)

Impact on diluted earnings per share $ (0.51) $ (0.51) $ (0.35)

There are no stock-based compensation costs capitalized as part of the cost of an asset.


Stock-based compensation expense by award type is below (in thousands):Year Ended March 31,

(Unaudited) 2009 2010 2011

Stock-based compensation by award type:

Stock options $ 7,209 $ 6,287 $ 3,590

Restricted stock units 5,179 5,857 5,202

Employee stock purchase rights 59 8 —

Total stock-based compensation $ 12,447 $ 12,152 $ 8,792

Included in stock-based compensation for the year ended March 31, 2010 are pre-tax charges relating to the acceleration of the remaining expense on cancelled stock option awards of approximately $0.7 million recorded in cost of services, $0.1 million recorded in member relations and marketing, and $1.1 million recorded in general and administrative expense.

As of March 31, 2011, $14.2 million of total unrecognized compensation cost related to stock-based compensation is expected to be recognized over a weighted average period of 1.3 years.

NON-GAAP FINANCIAL MEASURES

The tables below present information for the fiscal periods indicated about our adjusted EBITDA, adjusted net income, and non-GAAP earnings per diluted share.

We define “adjusted EBITDA” as earnings before other income, net, which includes interest income and foreign cur-rency losses and gains; income taxes; depreciation and amortization; amortization of acquisition-related intangibles and capitalized software included in cost of services; non-cash charges associated with the write-off of capitalized software and the cancellation of certain stock options that occurred in the quarter ended September 30, 2009; costs associated with the acquisitions of Concuity and Cielo MedSolutions LLC, or Cielo, that occurred in the quarters ended March 31, 2010 and 2011, respectively; share-based compensation expense; and fair value adjustments made to our acquisition-related earn out liabilities. We define “adjusted net income” as net income excluding the net of tax effect of non-cash charges associated with the write-off of capitalized software and the cancellation of certain stock options; share-based compensation expense; amortization of acquisition-related intangibles; costs associated with the acquisitions of Concuity and Cielo; and fair value adjustments made to our acquisition-related earn out liabilities. We define “non-GAAP earnings per diluted share” as net income per share excluding the net of tax effect of non-cash charges associated with the write-off of capitalized software and the cancellation of certain stock options; share-based compensation expense; amortization of acquisition-related intangibles; costs associated with the acquisitions of Concuity and Cielo; and fair value adjustments made to our acquisition-related earn out liabilities.

We believe that providing information about adjusted EBITDA, adjusted net income, and non-GAAP earnings per diluted share is useful to our investors. Our management uses these non-GAAP financial measures, together with financial measures prepared in accordance with GAAP, to enhance its understanding of our core operating performance, which represents our views concerning our performance in the ordinary, ongoing, and customary course of our operations. In the future, we expect to report again these non-GAAP financial measures excluding the items discussed above and may incur expenses similar to the excluded items discussed above. Accordingly, the exclusion of these and similar items in our non-GAAP presentation should not be interpreted as implying that the items are non-recurring, infrequent, or unusual.

Our management believes that for the reasons discussed below, our use of supplemental financial measures which exclude certain expenses facilitates an assessment by management and our investors of the company’s fundamental operating trends and addresses concerns of management and investors that these expenses may obscure such underlying trends. Management uses the financial measures for internal budgeting and other managerial purposes because the measures enable management to evaluate projected operating results and make comparative assess-ments of our performance over time while isolating the effects of certain items that vary from period to period without any correlation to core operating performance, such as tax rates, interest income and foreign currency exchange rates, periodic costs of certain capitalized tangible and intangible assets, share-based compensation expense, and certain non-cash and special charges. The effects of the foregoing items also vary widely among similar companies, and affect the ability of management and investors to make company-to-company comparisons. In addition, merger and acquisition activity can have inconsistent effects on earnings that are not related to core operating performance, for example due to charges relating to acquisition costs, the amortization of acquisition-related intangibles, and fluctuations in the fair value of contingent earn-out liabilities. Companies also exhibit


significant variations with respect to capital structure and cost of capital (which affect relative interest expense) and differences in taxation and book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. By eliminating some of the foregoing variations, management believes that the company’s non-GAAP financial measures allow management and investors to evaluate more effectively the company’s performance relative to that of its competitors and peer companies. Similarly, our management believes that because of the variety of equity awards used by companies, the varying methodologies for determining both share-based compensation and share-based compensation expense among companies and from period to period, and the subjective assumptions involved in those determinations, excluding share-based compensation from our non-GAAP financial measures enhances company-to-company comparisons over multiple fiscal periods.

Management believes that providing non-GAAP information permits analysts, investors, and other interested persons to obtain a better understanding of our core operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure that performance on a standalone and a comparative basis. As a result, we intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions, and the inclusion of such measures in our periodic reports will provide consistency in our financial reporting.

There are limitations associated with the non-GAAP financial measures we use as indicators of performance, including the following:

• the non-GAAP financial measures do not reflect capital expenditures and future requirements for capital expenditures;

• the non-GAAP financial measures generally do not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will in some cases have to be replaced in the future, nor do the measures reflect any cash requirements for such replacements;

• the non-GAAP financial measures do not reflect the expense of equity awards to employees;

• the non-GAAP financial measures do not reflect the effect of earnings or charges resulting from matters that management considers not indicative of our ongoing operations, but which may recur; and

• to the extent that we change our accounting for certain transactions or other items from period to period, our non-GAAP financial measures may not be directly comparable from period to period.

Our non-GAAP measures may be calculated differently from similarly titled measures used by other companies, which limits their usefulness as comparative measures.

Our management compensates for these limitations by using the non-GAAP financial measures only as a supplemental measure of our operating performance and by considering independently the economic effects of the foregoing items that are or are not reflected in the measures. As a result of the foregoing limitations, our non-GAAP financial measures should be considered in addition to financial measures prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP measures or results as indicators of performance.

A reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below (in thousands).


(Unaudited) 2009 2010 2011

Net income $ 21,468 $ 11,433 $ 18,524

Provision for income taxes 10,117 5,969 9,930

Other income, net (2,637) (2,340) (1,866)

Depreciation and amortization 5,647 6,391 5,971

Amortization of intangibles(1) 976 1,644 4,721

Acquisition charges — 1,123 408

Fair value adjustments to acquisition-related earn out liabilities — — 1,500

Write-off of capitalized software — 7,397 —

Option cancellation charge — 1,937 —

Share-based compensation expense 12,448 10,216 8,792

Adjusted EBITDA $ 48,019 $ 43,770 $ 47,980

(1) Consists of those amounts included in cost of services on our consolidated statements of income.



(Unaudited) 2009 2010 2011

Net income $ 21,468 $ 11,433 $ 18,524

Amortization of acquisition-related intangibles, net of tax 783 1,079 2,896

Acquisition charges, net of tax — 738 266

Fair value adjustments to acquisition-related earn out liabilities, net of tax — — 977

Write-off of capitalized software, net of tax — 4,860 —

Option cancellation charge, net of tax — 1,273 —

Share-based compensation, net of tax 8,464 6,712 5,724

Adjusted net income $ 30,715 $ 26,095 $ 28,387

GAAP earnings per diluted share $ 1.30 $ 0.73 $ 1.13

Amortization of acquisition-related intangibles, net of tax 0.05 0.07 0.17

Acquisition charges, net of tax — 0.04 0.02

Fair value adjustments to acquisition-related earn out liabilities, net of tax — — 0.06

Write-off of capitalized software, net of tax — 0.31 —

Option cancellation charge, net of tax — 0.08 —

Share-based compensation, net of tax 0.51 0.43 0.35

Non-GAAP earnings per diluted share $ 1.86 $ 1.66 $ 1.73

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operating activities are our primary source of liquidity. We believe that existing cash, cash equivalents, and marketable securities balances and operating cash flows will be sufficient to support operating and capital expenditures, as well as share repurchases and potential acquisitions, during at least the next 12 months. We had cash, cash equivalents, and marketable securities balances of $112.9 million and $116.6 million as of March 31, 2010 and 2011, respectively. We expended $4.0 million and $8.3 million in cash to purchase shares of our common stock through our share repurchase program during fiscal 2010 and 2011, respectively. We have no long-term indebtedness.

Cash flows from operating activitiesThe combination of revenue growth, profitable operations, and payment for memberships in advance of accrual revenue typically results in operating activities that generate cash flows in excess of net income on an annual basis. Net cash flows provided by operating activities were $39.7 million in fiscal 2009, $46.7 million in fiscal 2010, and $50.5 million in fiscal 2011. The increase in net cash flows provided by operating activities in fiscal 2010 was primarily due to acceleration in contract value and deferred revenue growth, as well as the impact of the write-off of capitalized software of $7.4 million and the $1.9 million non-cash charge associated with the cancellation of certain stock options. The increase in net cash flows provided by operating activities in fiscal 2011 was primarily due to the increase in net income and deferred revenue, partially offset by an increase in excess tax benefits resulting from the exercise of employee stock options.

Cash flows from investing activitiesOur cash management and investment strategy and capital expenditure programs affect investing cash flows. Net cash flows provided by investing activities were $27.4 million in fiscal 2009. Net cash flows used in investing activities were $4.3 million and $91.1 million in fiscal 2010 and 2011, respectively.

In fiscal 2009, investing activities provided $27.4 million in cash, primarily from the net proceeds on the redemption of marketable securities of $61.0 million, which was primarily used to fund our share repurchase program and our acquisition of Crimson for $18.6 million, net of cash received, and capital expenditures of $15.0 million, which included $3.8 million in purchases of property and equipment related primarily to the scheduled expansion of our headquarters facility and $9.7 million of capitalized software development costs related to our newer research programs that include web-based business intelligence tools.

In fiscal 2010, investing activities used $4.3 million in cash, primarily consisting of $13.6 million used in our acquisi-tion of Southwind and the related escrow, a $5.0 million investment, and capital expenditures of $2.5 million, partially offset by the net proceeds on the redemption and sales of marketable securities of $16.9 million.

In fiscal 2011, investing activities used $91.9 million in cash, primarily consisting of $42.6 million used in our acquisi-tions of Concuity and Cielo, $37.0 million used on the net purchases marketable securities, and capital expenditures of $12.3 million.


Cash flows from financing activitiesWe used net cash flows in financing activities of $61.3 million and $4.9 million in fiscal 2009 and 2010, respectively. We had net cash flows provided by financing activities of $10.6 million in fiscal 2011.

In fiscal 2009 we used net cash flows in financing activities of $61.3 million. Of this amount, we applied approxi-mately $61.5 million to repurchase 2,051,225 shares of our common stock and $0.8 million to satisfy minimum employee tax withholding for vested restricted stock units. The effects of these transactions were offset in part by our receipt of $0.4 million from the exercise of stock options and $0.3 million from the issuance of common stock under our employee stock purchase plan.

In fiscal 2010 we used net cash flows in financing activities of $4.9 million, consisting of repurchasing 146,179 shares of our common stock for approximately $4.0 million and $1.2 million withheld to satisfy minimum employee tax withholding for vested restricted stock units, offset by $0.2 million from the exercise of stock options and $0.1 million from the issuance of common stock under our employee stock purchase plan.

In fiscal 2011 we had net cash flows provided by financing activities of $10.6 million, consisting of $17.8 million from the exercise of stock options, $0.2 million from the issuance of common stock under our employee stock purchase plan, and $2.6 million in excess tax benefits resulting from the exercise of employee options, offset by our repurchase of 188,930 shares of our common stock for approximately $8.3 million and our use of $1.6 million to satisfy minimum employee tax withholding for vested restricted stock units.

Credit facilitiesIn November 2006, we entered into a $20 million revolving credit facility with a commercial bank that can be used for working capital, share repurchases, or other general corporate purposes. Borrowings on the credit facility, if any, will be collateralized by certain of our marketable securities and will bear interest at an amount based on the published LIBOR rate. We are also required to maintain an interest coverage ratio for each fiscal year of not less than three to one. The credit facility renews automatically each year until October 31, 2011, and can be increased at our request by up to an additional $10 million per year. We have not requested any increases in the credit facility and there have been no borrowings under the facility. The availability of borrowings under the credit facility was $20 million as of March 31, 2011.

Contractual obligationsThe following summarizes our contractual obligations as of March 31, 2011 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. These obligations relate to obligations under our headquarters and other offices leases as well as purchase obligations for software development services, both of which are more fully described in Note 15, “Commitments and contingencies,” of our consolidated financial statements appearing elsewhere in this report.

Payments due by Period

(In thousands) Total <1 Year 1–3 Yrs 4–5 Yrs >5 Yrs

Non-cancelable operating leases $ 73,656 $8,288 $ 28,133 $ 18,516 $18,719

Purchase obligations $ 3,000 $ — $ 3,000 $ — $ —

Share repurchaseIn January 2004, our Board of Directors authorized the repurchase by us from time to time of up to $50 million of our common stock. This authorization was increased in cumulative amount to $100 million in October 2004, to $150 million in February 2006, to $200 million in January 2007, to $250 million in July 31, 2007, and to $350 million in April 2008. We intend to fund any future share repurchases with cash on hand and with cash generated from operations. No minimum number of shares for repurchase has been fixed, and the share repurchase authorization has no expiration date. All repurchases have been made in the open market pursuant to this publicly announced repurchase program. As of March 31, 2011, the remaining authorized repurchase amount was $33.6 million.

Exercise of stock options and purchases under our employee stock purchase planOptions granted to participants under our stock-based incentive compensation plans that were exercised to acquire shares in fiscal 2009, 2010, and 2011 generated cash of approximately $0.4 million, $0.2 million, and $17.8 million, respectively, from payment of option exercise prices. In addition, in fiscal 2009, 2010, and 2011 we generated cash of approximately $0.3 million, $0.1 million, and $0.2 million, respectively, in discounted stock purchases by participants under our employee stock purchase plan.


OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2011, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) estab-lished for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually limited purposes.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

We have identified the following policies as critical to our business operations and the understanding of our results of operations. This listing is not a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. Certain of our accounting policies are particularly important to the presentation of our financial condition and results of operations and may require the application of significant judgment by our management. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, our observance of trends in the industry, information provided by our members, and information available from other outside sources, as appropriate. For a more detailed discussion on the application of these and other accounting policies, see Note 3, “Summary of significant accounting policies” of our consolidated financial statements appearing elsewhere in this report. Our critical accounting policies are discussed below.

Revenue recognitionRevenue is recognized when (1) there is persuasive evidence of an arrangement, (2) the fee is fixed or determinable, (3) services have been rendered and payment has been contractually earned, and (4) collectibility is reasonably assured. Fees are generally billable when a letter of agreement is signed by the member, and fees receivable during the subsequent twelve month period and related deferred revenue are recorded upon the commencement of the agreement or collection of fees, if earlier. In many of our higher priced programs and membership agreements with terms that are greater than one year, fees may be billed on an installment basis. Members whose membership agree-ments are subject to the service guarantee may request a refund of their fees, which is provided on a pro rata basis relative to the length of the service period.

Revenue from renewable memberships is recognized ratably over the term of the related subscription agreement. Certain membership programs incorporate hosted business intelligence and software tools. In many of these agreements, members are charged set up fees in addition to subscription fees for access to the hosted web-based business intelligence tools and related membership services. Both set up fees and subscription fees are recognized ratably over the term of the membership agreement, which is generally one to three years. Upon launch of a new program that incorporates a business intelligence software tool, all program revenue is deferred until the tool is generally available for release to our membership, and then recognized ratably over the remainder of the contract term of each agreement. One of our programs includes delivered software tools together with implementation services, technical support, and related membership services. For these arrangements, we separate the fair value of the technical support and related membership services from the total value of the contract based on vendor specific objective evidence of fair value. The fees related to the software license and implementation services are bundled and recognized as services are performed using project hours as the basis to measure progress towards completion. Fees associated with the technical support and related membership services are recorded as revenue ratably over the term of the agreement, beginning when all other elements have been delivered. Multiple contracts with a single member are treated as separate arrangements for revenue recognition purposes.

We also perform professional services sold under separate agreements that include management and consulting services. We recognize professional services revenues on a time-and-materials basis as services are rendered.

Allowance for uncollectible revenueOur ability to collect outstanding receivables from our members has an effect on our operating performance and cash flows. We maintain an allowance for uncollectible revenue as a reduction of revenue based on our ongoing monitoring of members’ credit and the aging of receivables. To determine the allowance for uncollectible revenue, we examine our collections history, the age of accounts receivable in question, any specific member collection issues that have been identified, general market conditions, and current economic trends.


Property and equipmentProperty and equipment consists of leasehold improvements, furniture, fixtures, equipment, capitalized internal software development costs, and acquired developed technology. Property and equipment is stated at cost, less accumulated depreciation and amortization. In certain membership programs, we provide software tools under a hosting arrangement where the software application resides on our service providers’ hardware. The members do not take delivery of the software and only receive access to the business intelligence and software tools during the term of their membership agreement. Computer software development costs that are incurred in the preliminary project stage are expensed as incurred. During the development stage direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capitalized and amortized over the estimated useful life of the software once placed into operation. Capitalized software is amortized using the straight-line method over its estimated useful life, which is generally five years. Replacements and major improve-ments are capitalized, while maintenance and repairs are charged to expense as incurred.

The acquired developed technology is classified as property and equipment because the developed software application resides on our service providers’ hardware. Amortization for acquired developed software is included in the depreciation and amortization of property and equipment line item of our consolidated statements of income. Acquired developed software is amortized over its estimated useful life of nine years based on the cash flow estimate used to determine the value of the intangible asset.

Furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term.

Business combinationsWe record acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration are recognized at their fair value on the acquisition date. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowance are recognized as a reduction or increase to expense or as a direct adjustment to additional paid-in capital as required. We capitalize any acquired in-process research and development as an intangible asset and amortize it over its estimated useful life. As a result of our adoption of the revised accounting guidance for business combinations as of the beginning of fiscal 2010, acquisition-related costs are now recorded as expenses in our consolidated financial statements that would previously have been capitalized as a part of the purchase price pursuant to previous accounting rules.

Goodwill and other intangible assetsThe excess cost of an acquisition over the fair value of the net assets acquired is recorded as goodwill. Goodwill and other intangible assets with indefinite lives are not amortized, but rather tested for impairment on an annual basis on March 31, or more frequently if events or changes in circumstances indicate potential impairment. We have con-cluded that our reporting units that we use to assess goodwill impairment are the same as our operating segments.

We assess goodwill for impairment using a two-step impairment test. Step one of the test is used to identify whether or not an impairment may exist. In the first step, we compare the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units based on the income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment may exist. If it is determined that an impairment may exist, step two of the impairment test must then be performed to measure the amount of the impairment, if any. The second step determines the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, discount rates and future economic and market conditions. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions, which would not reflect unanticipated events and circumstances that may occur.


Other intangible assets consist of capitalized software for sale and acquired intangibles. We capitalize consulting costs and payroll and payroll-related costs for employees directly related to building a software product once technological feasibility is established. We determine that technological feasibility is established by the completion of a detail program design or, in its absence, completion of a working model. Once the software product is ready for general availability, we cease capitalizing costs and begin amortizing the intangible asset on a straight-line basis over its estimated useful life. The weighted average estimated useful life of capitalized software is five years. Other intangible assets include those assets that arise from business combinations consisting of developed technology, non-competes, trademarks, contracts, and customer relationships that are amortized, on a straight-line basis, over six months to ten years. Finite-lived intangible assets are required to be amortized over their useful lives and are evaluated for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Recovery of long-lived assets (excluding goodwill)We record our long-lived assets, such as property and equipment, at cost. We review the carrying value of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be fully recoverable. The test for recoverability is made using an estimate of the undiscounted expected future cash flows and, if required, the impairment loss, if any, is measured as the amount that the carrying value of the asset exceeds the asset’s fair value if the asset is not recoverable. We consider expected cash flows and estimated future operating results, trends, and other available information in assessing whether the carrying value of assets is impaired. If we determine that an asset’s carrying value is impaired, we will record a write-down of the carrying value of the identified asset and charge the impairment as an operating expense in the period in which the determination is made. Although we believe that the carrying values of our long-lived assets are appropriately stated, changes in strategy or market conditions or significant technological developments could significantly impact these judgments and require adjustments to recorded asset balances.

Deferred incentive compensation and other chargesDirect incentive compensation to our employees related to the negotiation of new and renewal memberships, license fees to third party vendors for tools, data, and software incorporated in specific memberships that include business intelligence tools, and other direct and incremental costs associated with specific memberships are deferred and amortized over the term of the related memberships.

Income taxesDeferred income taxes are determined using the asset and liability method. Under this method, temporary differ-ences arise as a result of the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and tax rates on the date of the enactment of the change.

Stock-based compensationWe measure and recognize stock-based compensation cost based on the estimated fair values of the stock-based awards on the grant date. Stock-based compensation costs are recognized as an expense in the consolidated state-ments of income over the vesting periods of the awards. We calculate the grant date estimated fair value of stock options using a Black-Scholes valuation model. Determining the estimated fair value of stock-based awards is subjec-tive in nature and involves the use of significant estimates and assumptions, including the term of the stock-based awards, risk-free interest rates over the vesting period, expected dividend rates, the price volatility of our shares, and forfeiture rates of the awards. Forfeitures are estimated at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The forfeiture rate is based on historical experience. Our fair value estimates are based on assumptions we believe are reasonable but that are inherently uncertain. The fair value of restricted stock units is determined as the fair market value of the underlying shares on the date of grant.

We also report the benefits of tax deductions in excess of recognized compensation expense as a financing cash inflow in our consolidated statements of cash flows.

To the extent we change the terms of our employee stock-based compensation programs, experience market volatil-ity in the pricing of our common stock that increases the implied volatility calculation, or refine different assumptions in future periods such as forfeiture rates that differ from our current estimates, among other potential factors, the stock-based compensation expense that we record in future periods and the tax benefits that we realize may differ significantly from what we have recorded in previous reporting periods.


RECENT ACCOUNTING PRONOUNCEMENTS

See Note 3, “Summary of significant accounting policies” of our consolidated financial statements appearing elsewhere in this report for a description of recent accounting pronouncements, including the expected dates of adoption.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate riskWe are exposed to interest rate risk primarily through our portfolio of cash, cash equivalents, and marketable securities, which is designed for safety of principal and liquidity. Cash and cash equivalents include investments in highly liquid U.S. Treasury obligations with maturities of less than three months. As of March 31, 2011, our marketable securities consisted of $62.5 million in tax-exempt notes and bonds issued by various states, and $23.7 million in U.S. government agency securities. The weighted average maturity on all our marketable securities as of March 31, 2011 was approximately 5.3 years. We perform periodic evaluations of the relative credit ratings related to our cash, cash equivalents, and marketable securities. Our portfolio is subject to inherent interest rate risk as investments mature and are reinvested at current market interest rates. We currently do not use derivative financial instruments to adjust our portfolio risk or income profile. Due to the nature of our investments we have not prepared quantitative disclosure for interest rate sensitivity in accordance with Item 305 of the SEC’s Regulation S-K as we believe the effect of interest rate fluctuations would not be material.

Foreign currency riskAlthough they accounted for approximately 3% of our fiscal 2011 revenue, our international operations subject us to risks related to currency exchange fluctuations. Prices for our services sold to members located outside the United States are sometimes denominated in local currencies (primarily British Pound Sterling). As a consequence, increases in the U.S. dollar against local currencies in countries where we have members would result in a foreign exchange loss recognized by us. In fiscal 2009, 2010, and 2011, we recorded foreign currency exchange (losses) or gains of ($1.1 million), $46,000, and $157,000, respectively, which are included in other income, net in our consolidated statements of income. A hypothetical 10% change in foreign currency exchange rates would not have a material impact on our financial position as of March 31, 2011.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE ADVISORY BOARD COMPANY AND SUBSIDIARIES:

We have audited the accompanying consolidated balance sheets of The Advisory Board Company and subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Advisory Board Company and subsidiaries as of March 31, 2011 and 2010, and the consoli-dated results of their operations and their cash flows for each of the three years in the period ended March 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Advisory Board Company’s internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 14, 2011 expressed an unqualified opinion thereon.

Baltimore, MarylandJune 14, 2011


CONSOLIDATED BALANCE SHEETSThe Advisory Board Company and Subsidiaries

March 31,

(In thousands, except share and per share amounts) 2010 2011

AssetsCurrent assets: Cash and cash equivalents $ 61,238 $ 30,378 Marketable securities 10,422 — Membership fees receivable, net 143,453 179,162 Prepaid expenses and other current assets 3,326 7,069 Deferred income taxes, net 5,629 5,894

Total current assets 224,068 222,503Property and equipment, net 22,183 29,529Intangible assets, net 9,161 18,450Goodwill 37,255 67,155Deferred incentive compensation and other charges 37,563 46,226Deferred income taxes, net of current portion 7,782 9,646Other non-current assets 7,500 11,500Marketable securities 41,260 86,179

Total assets $ 386,772 $ 491,188

Liabilities and Stockholders’ EquityCurrent liabilities: Deferred revenue $ 182,689 $ 223,876 Accounts payable and accrued liabilities 51,254 51,957 Accrued incentive compensation 12,152 13,609

Total current liabilities 246,095 289,442 Long-term deferred revenue 25,713 42,139 Other long-term liabilities 3,149 11,015

Total liabilities 274,957 342,596

Stockholders’ equity: Preferred stock, par value $0.01; 5,000,000 shares authorized, zero shares issued

and outstanding — — Common stock, par value $0.01; 90,000,000 shares authorized, 21,836,893

and 22,530,909 shares issued as of March 31, 2010 and 2011, respectively, and 15,505,152 and 16,010,238 shares outstanding as of March 31, 2010 and 2011, respectively 218 225

Additional paid-in capital 239,548 267,242 Retained earnings 145,925 164,449 Accumulated elements of other comprehensive income (loss) 1,034 (120) Treasury stock, at cost 6,331,741 and 6,520,671 shares as of March 31, 2010 and

2011, respectively (274,910) (283,204)

Total stockholders’ equity 111,815 148,592

Total liabilities and stockholders’ equity $ 386,772 $ 491,188

The accompanying notes are an integral part of these consolidated balance sheets.


CONSOLIDATED STATEMENTS OF INCOMEThe Advisory Board Company and Subsidiaries


(In thousands, except per share amounts) 2009 2010 2011

Revenue $ 230,360 $ 239,323 $ 290,248

Costs and expenses: Cost of services 116,556 124,412 154,395 Member relations and marketing 52,292 53,928 65,069 General and administrative 26,725 32,133 38,225 Depreciation and amortization of property and equipment 5,647 6,391 5,971 Write-off of capitalized software — 7,397 —

Income from operations 29,140 15,062 26,588 Other income, net 2,445 2,340 1,866

Income before provision for income taxes 31,585 17,402 28,454Provision for income taxes (10,117) (5,969) (9,930)

Net income $ 21,468 $ 11,433 $ 18,524

Earnings per share: Net income per share—basic $ 1.31 $ 0.74 $ 1.18 Net income per share—diluted $ 1.30 $ 0.73 $ 1.13Weighted average number of shares outstanding: Basic 16,441 15,515 15,733 Diluted 16,560 15,692 16,415

The accompanying notes are an integral part of these consolidated statements.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYThe Advisory Board Company and Subsidiaries

Common SharesAdditional

Paid-in Retained

Accumulated Elements of Other

Comprehensive TreasuryAnnual

Comprehensive(In thousands, except share amounts) Stock Amount Capital Earnings Income (Loss) Stock Total Income

Balance as of March 31, 2008 17,393,626 215 $ 217,170 $ 113,024 $ 1,540 $ (209,420) $ 122,529 $ —Acquisition of Crimson Software, Inc. 102,984 1 4,724 — — — 4,725 —Proceeds from exercise of stock options 18,625 — 420 — — — 420 —Vesting of restricted stock units, net of

shares withheld to satisfy minimum employee tax withholding 80,070 1 (825) — — — (824) —

Deficient tax benefits from stock-based awards — — (479) — — — (479) —

Proceeds from issuance of common stock under employee stock purchase plan 14,844 — 337 — — — 337 —

Stock-based compensation expense — — 12,447 — — — 12,447 —Purchases of treasury stock (2,051,255) — — — — (61,491) (61,491) —Change in net unrealized gains (losses) on

available-for-sale marketable securities, net of income taxes of ($125) — — — — (233) — (233) (233)

Net income — — — 21,468 — — 21,468 21,468

Balance as of March 31, 2009 15,558,894 217 $ 233,794 $ 134,492 $ 1,307 $ (270,911) $ 98,899 $21,235

Proceeds from exercise of stock options 11,500 — 214 — — — 214 —Vesting of restricted stock units, net of

shares withheld to satisfy minimum employee tax withholding 75,364 1 (1,249) — — — (1,248) —

Deficient tax benefits from stock-based awards — — (811) — — — (811) —


Stock-based compensation expense — — 12,152 — — — 12,152 —Purchases of treasury stock (146,179) — — — — (3,999) (3,999) —Reversal of deferred tax asset for option

cancellation — — (4,700) — — — (4,700) —Change in net unrealized gains (losses) on

available-for-sale marketable securities, net of income taxes of ($94) — — — — (273) — (273) (273)

Net income — — — 11,433 — — 11,433 11,433

Balance as of March 31, 2010 15,505,152 218 $ 239,548 $ 145,925 $ 1,034 $ (274,910) $ 111,815 $ 11,160

Proceeds from exercise of stock options 605,641 6 17,770 — — — 17,776 —Vesting of restricted stock units, net of

shares withheld to satisfy minimum employee tax withholding 84,039 1 (1,628) — — — (1,627) —

Excess tax benefits from stock-based awards — — 2,569 — — — 2,569 —


Stock-based compensation expense — — 8,792 — — — 8,792 —Purchases of treasury stock (188,930) — — — — (8,294) (8,294) —Change in net unrealized gains (losses) on

available-for-sale marketable securities, net of income taxes of ($619) — — — — (1,154) — (1,154) (1,154)

Net income — — — 18,524 — — 18,524 18,524

Balance as of March 31, 2011 16,010,238 225 $ 267,242 $ 164,449 $ (120) $ (283,204) $ 148,592 $ 17,370



CONSOLIDATED STATEMENTS OF CASH FLOWSThe Advisory Board Company and Subsidiaries


(In thousands) 2009 2010 2011

Cash flows from operating activities:Net income $ 21,468 $ 11,433 $ 18,524Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 5,647 6,391 5,971 Write-off of capitalized software — 7,397 — Amortization of intangible assets 980 1,644 4,723 Deferred income taxes 3,635 (8,136) (1,511) Excess tax benefits from stock-based awards (291) — (2,569) Stock-based compensation expense 12,447 12,152 8,792 Amortization of marketable securities premiums 681 633 741 Changes in operating assets and liabilities: Membership fees receivable (25,485) (25,822) (32,346) Prepaid expenses and other current assets (1,381) 1,799 (3,339) Deferred incentive compensation and other charges (4,529) (10,826) (8,663) Deferred revenues 22,410 36,277 56,310 Accounts payable and accrued liabilities 4,449 9,532 9,573 Accrued incentive compensation (2,712) 4,832 394 Other long-term liabilities 2,372 (635) (6,131)

Net cash provided by operating activities 39,691 46,671 50,469

Cash flows from investing activities: Purchases of property and equipment (14,017) (1,802) (10,317) Capitalized external use software development costs (996) (742) (2,012) Cash paid for acquisition, net of cash acquired (18,592) (13,600) (42,605) Redemptions of marketable securities 88,054 45,412 26,080 Purchases of marketable securities (27,033) (28,561) (63,083) Other investing activities — (5,000) —

Net cash provided by/(used in) investing activities 27,416 (4,293) (91,937)

Cash flows from financing activities: Proceeds from issuance of common stock from exercise of stock options 420 214 17,770 Withholding of shares to satisfy minimum employee tax withholding for

vested restricted stock units (825) (1,249) (1,628) Proceeds from issuance of common stock under employee stock purchase plan 337 148 191 Excess tax benefits from stock-based awards 291 — 2,569 Purchases of treasury stock (61,491) (3,999) (8,294)

Net cash used in financing activities (61,268) (4,886) 10,608

Net increase/(decrease) in cash and cash equivalents 5,839 37,492 (30,860)Cash and cash equivalents, beginning of period 17,907 23,746 61,238

Cash and cash equivalents, end of period $ 23,746 $ 61,238 $ 30,378

Supplemental disclosure of cash flow information: Cash paid for income taxes $ 5,211 $ 12,958 $ 12,068



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe Advisory Board Company and Subsidiaries

NOTE 1. BUSINESS DESCRIPTION

The Advisory Board Company (individually and collectively with its subsidiaries, the “Company”) provide best practices research and analysis, business intelligence and software tools, and management and advisory services to hospitals, health systems, pharmaceutical and biotech companies, health care insurers, medical device companies, colleges, universities, and other educational institutions through discrete programs. Members of each program are typically charged a fixed annual fee and have access to an integrated set of services that may include best practices research studies, executive education seminars, customized research briefs, web-based access to the program’s content database, and business intelligence and software tools.

NOTE 2. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash equivalents and marketable securitiesIncluded in cash equivalents are marketable securities that mature within three months of purchase. Investments with maturities of more than three months are classified as marketable securities. Current marketable securities have maturity dates within twelve months of the balance sheet date. As of March 31, 2010 and 2011, the Company’s marketable securities consisted of U.S. government agency obligations and various state tax-exempt notes and bonds. The Company’s marketable securities, which are classified as available-for-sale, are carried at fair market value based on quoted market prices. The net unrealized gains and losses on available-for-sale marketable securities are excluded from net income and are included within accumulated elements of other comprehensive income, net of tax. The specific identification method is used to compute the realized gains and losses on the sale of market-able securities.

Property and equipmentProperty and equipment consists of leasehold improvements, furniture, fixtures, equipment, capitalized internal software development costs, and acquired developed technology. Property and equipment is stated at cost, less accumulated depreciation and amortization. In certain membership programs, the Company provides software tools under a hosting arrangement where the software application resides on the Company’s or its service providers’ hardware. The members do not take delivery of the software and only receive access to the business intelligence and software tools during the term of their membership agreement. Computer software development costs that are incurred in the preliminary project stage are expensed as incurred. During the development stage, direct consulting costs and payroll and payroll-related costs for employees that are directly associated with each project are capital-ized and amortized over the estimated useful life of the software once placed into operation. Capitalized software is amortized using the straight-line method over its estimated useful life, which is generally five years. Replacements and major improvements are capitalized, while maintenance and repairs are charged to expense as incurred.

The acquired developed technology is classified as property and equipment because the developed software applica-tion resides on the Company’s or its service providers’ hardware. Amortization for acquired developed software is included in the depreciation and amortization of property and equipment line item of the Company’s consolidated statements of income. Acquired developed software is amortized over its estimated useful life of nine years based on the cash flow estimate used to determine the value of the intangible asset.

Furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term.


Business CombinationsThe Company records acquisitions using the purchase method of accounting. All of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration are recognized at their fair value on the acqui-sition date. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowance are recognized as a reduction or increase to expense or as a direct adjustment to additional paid-in capital as required. Any acquired in-process research and development is capitalized as an intangible asset and amortized it over its estimated useful life. Acquisition-related costs are recorded as expenses in the consolidated financial statements. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

Goodwill and other intangible assetsThe excess cost of an acquisition over the fair value of the net assets acquired is recorded as goodwill. The primary drivers that generate goodwill are the value of synergies between the acquired entities and the Company and the acquired assembled workforce, neither of which qualifies as an identifiable intangible asset. The Company’s goodwill and other intangible assets with indefinite lives are not amortized, but rather tested for impairment on an annual basis on March 31, or more frequently if events or changes in circumstances indicate potential impairment. The Company has concluded that its reporting units used to assess goodwill impairment are the same as its operating segments.

The Company assesses goodwill for impairment using a two-step impairment test. Step one of the test is used to identify whether or not an impairment may exist. In the first step, the fair value of each reporting unit is compared to its carrying value. The Company determines the fair value of its reporting units based on the income approach. Under the income approach, the fair value of a reporting unit is calculated based on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment may exist. If it is determined that an impairment may exist, step two of the impairment test is performed to measure the amount of the impairment, if any. The second step determines the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss equal to the difference is recorded.

Other intangible assets consist of capitalized software for sale and acquired intangibles. The Company capitalizes consulting costs and payroll and payroll-related costs for employees directly related to building a software product once technological feasibility is established. The Company determines that technological feasibility is established by the completion of a detail program design or, in its absence, completion of a working model. Once the software product is ready for general availability, the Company ceases capitalizing costs and begins amortizing the intangible asset on a straight-line basis over its estimated useful life. The weighted average estimated useful life of capitalized software is five years. Other intangible assets include those assets that arise from business combinations consisting of developed technology, non-competes, trademarks, contracts, and customer relationships that are amortized, on a straight-line basis, over six months to ten years. Finite-lived intangible assets are required to be amortized over their useful lives and are evaluated for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Recovery of long-lived assets (excluding goodwill)The Company records long-lived assets, such as property and equipment, at cost. The carrying value of long-lived assets is reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be fully recoverable. The test for recoverability is made using an estimate of the undis-counted expected future cash flows and, if required, the impairment loss is measured as the amount that the carrying value of the asset exceeds the asset’s fair value if the asset is not recoverable. The Company considers expected cash flows and estimated future operating results, trends, and other available information in assessing whether the carrying value of assets is impaired. If it is determined that an asset’s carrying value is impaired, a write-down of the carrying value of the identified asset will be recorded as an operating expense on the consolidated statements of income in the period in which the determination is made.


Revenue recognitionRevenue is recognized when (1) there is persuasive evidence of an arrangement, (2) the fee is fixed or determinable, (3) services have been rendered and payment has been contractually earned, and (4) collectability is reasonably assured. Fees are generally billable when a letter of agreement is signed by the member, and fees receivable during the subsequent twelve month period and related deferred revenue are recorded upon the commencement of the agreement or collection of fees, if earlier. In many of the Company’s higher priced programs and membership agreements with terms that are greater than one year, fees may be billed on an installment basis. Members whose membership agreements are subject to the service guarantee may request a refund of their fees, which is provided on a pro rata basis relative to the length of the service period.

Revenue from renewable memberships is recognized ratably over the term of the related subscription agreement. Certain membership programs incorporate hosted business intelligence and software tools. In many of these agreements, members are charged set up fees in addition to subscription fees for access to the hosted web-based business intelligence tools and related membership services. Both set up fees and subscription fees are recognized ratably over the term of the membership agreement, which is generally one to three years. Upon launch of a new program that incorporates a business intelligence software tool, all program revenue is deferred until the tool is generally available for release to the Company’s membership, and then recognized ratably over the remainder of the contract term of each agreement. One of the Company’s programs includes delivered software tools together with implementation services, technical support, and related membership services. For these arrangements, the Company separates the fair value of the technical support and related membership services from the total value of the contract based on vendor specific objective evidence of fair value. The fees related to the software license and implementation services are bundled and recognized as services are performed using project hours as the basis to measure progress towards completion. Fees associated with the technical support and related membership services are recorded as revenue ratably over the term of the agreement, beginning when all other elements have been delivered. Multiple contracts with a single member are treated as separate arrangements for revenue recognition purposes.

The Company also performs professional services sold under separate agreements that include management and consulting services. The Company recognizes professional services revenues on a time-and-materials basis as services are rendered.

Allowance for uncollectible revenueThe Company’s ability to collect outstanding receivables from its members has an effect on the Company’s operat-ing performance and cash flows. The Company records an allowance for uncollectible revenue as a reduction of revenue based on its ongoing monitoring of members’ credit and the aging of receivables. To determine the allowance for uncollectible revenue, the Company examines its collections history, the age of accounts receivable in question, any specific member collection issues that have been identified, general market conditions, and current economic trends.

Deferred incentive compensation and other chargesDirect incentive compensation to employees related to the negotiation of new and renewal memberships, license fees to third party vendors for tools, data, and software incorporated in specific memberships that include business intelligence tools, and other direct and incremental costs associated with specific memberships are deferred and amortized over the term of the related memberships.

Earnings per shareBasic earnings per share is computed by dividing net income by the number of weighted average common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the number of weighted average common shares increased by the dilutive effects of potential common shares outstanding during the period. The number of potential common shares outstanding is determined in accordance with the treasury stock method, using the Company’s prevailing tax rates. Certain potential common share equivalents were not included in computation because their effect was anti-dilutive. Fully diluted shares outstanding for the fiscal year ended March 31, 2011 includes 33,279 contingently issuable shares related to the component of the Southwind Health Partners, L.L.C. and Southwind Navigator, LLC (together, “Southwind”) earn-out estimated to be settled in stock. For additional information regarding these shares, see Note 5, “Acquisitions.”


A reconciliation of basic to diluted weighted average common shares outstanding is as follows (in thousands):


2009 2010 2011

Basic weighted average common shares outstanding 16,441 15,515 15,733

Dilutive impact of stock options 94 101 539

Dilutive impact of restricted stock units 25 76 110

Dilutive impact of earn-out liability — — 33

Diluted weighted average common shares outstanding 16,560 15,692 16,415

The following stock based awards that were not included in calculating diluted net income per share because their effect was anti-dilutive (in thousands):


2009 2010 2011

Anti-dilutive stock based awards 2,920 1,753 485

Concentrations of riskFinancial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, and membership fees receivable. The Company maintains cash and cash equivalents and marketable securities with financial institutions. Marketable securities consist of U.S. government agency obligations and various state tax-exempt notes and bonds. The Company performs periodic evaluations of the relative credit ratings related to the cash, cash equivalents, and marketable securities. The credit risk with respect to membership fees receivable is generally diversified due to the large number of entities comprising the Company’s membership base, and the Company establishes allowances for potential credit losses. No one member accounted for more than 2% of revenue for any period presented.

For each of the fiscal years ended March 31, 2009, 2010, and 2011, the Company generated approximately 3% of revenue from members outside the United States. The Company’s limited international operations subject the Company to risks related to currency exchange fluctuations. Prices for the Company’s services sold to members located outside the United States are sometimes denominated in local currencies. As a consequence, increases in the U.S. dollar against local currencies in countries where the Company has members would result in a foreign exchange loss recognized by the Company.

Other income, netOther income, net for the fiscal year ended March 31, 2009 includes $3.5 million of interest income earned from the Company’s marketable securities and $1.1 million of losses on foreign exchange rates. Other income, net for the fiscal year ended March 31, 2010 includes $2.3 million of interest income earned from the Company’s marketable securities and a $46,000 gain on foreign exchange rates. Other income, net for the fiscal year ended March 31, 2011 includes $1.7 million of interest income earned from the Company’s marketable securities and a $158,000 gain on foreign exchange rates.

Income taxesDeferred income taxes are determined using the asset and liability method. Under this method, temporary differ-ences arise as a result of the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax law and tax rates on the date of the enactment of the change.

Fair value of financial instrumentsThe Company’s marketable securities consisting of U.S. government agency obligations and various state tax-exempt notes and bonds are classified as available-for-sale and are carried at fair market value based on quoted market prices.

Segment reportingOperating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker of an enterprise. Under this definition, the Company contains two operating segments as of March 31, 2011. Both segments have similar economic characteristics, pro-vide similar products and services sold to the same or very similar customers, and have similar sales and distribution procedures. Consequently, the Company has one reportable segment for financial statement purposes.


Research and development costsCosts related to the research and development of new programs are expensed when incurred. Research and develop-ment costs were immaterial for the fiscal years presented.

Stock-based compensationThe Company has several stock-based compensation plans which are described more fully in Note 11, “Stock-based compensation.” These plans provide for the granting of stock options and restricted stock units (“RSUs”) to employ-ees and non-employee members of the Company’s Board of Directors. Stock-based compensation cost is measured at the grant date of the stock-based awards based on their fair values, and is recognized as an expense in the consoli-dated statements of income over the vesting periods of the awards. The fair value of RSUs is determined as the fair market value of the underlying shares on the date of grant. The Company calculates the fair value of all stock option awards, with the exception of the stock options issued with market-based conditions, on the date of grant using the Black-Scholes model. The fair value of stock options issued with market-based conditions is calculated on the date of grant using a lattice option-pricing model. Forfeitures are estimated based on historical experience at the time of grant and adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company bases its fair value estimates on assumptions it believes to be reasonable but that are inherently uncertain.

Use of estimates in preparation of consolidated financial statementsThe Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles require the Company to make certain estimates, judgments, and assumptions. For cases where the Company is required to make certain estimates, judgments, and assumptions, the Company believes that the estimates, judgments, and assumptions upon which it relies are reasonable based upon information available to the Company at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, the Company’s financial statements will be affected. The Company’s estimates, judgments, and assumptions may include: estimates of bad debt reserves, estimates to establish employee bonus and commission accruals, estimating useful lives of acquired or internally developed intangible assets, estimating the fair value of goodwill and intangibles and evaluating impairment, determining when investment impairments are other-than-temporary, estimates in stock-based compensation forfeiture rates, and estimating the potential for future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.

Recent accounting pronouncements

Recently adoptedThe following is a summary of the new accounting guidance issued and applicable to the Company for the fiscal year ended March 31, 2011. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

In January 2010, the Financial Accounting Standards Board (the “FASB”) amended the accounting standards for fair value measurement and disclosures. The amended guidance requires additional disclosures, specifically regarding the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. It also requires separate presentation of purchases, sales, issuances, and settlements of Level 3 fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the additional Level 3 disclosures, which are effective for fiscal years beginning after December 15, 2010. The guidance affecting Level 1 and Level 2 fair value measurements was adopted on January 1, 2010 and the guidance regarding Level 3 disclosures was adopted on April 1, 2010. The adoption of this guidance did not impact the Company’s financial position or results of operations.

Accounting pronouncements not yet adoptedIn October 2009, the FASB amended the accounting standards for revenue recognition with multiple elements. The amended guidance allows the use of management’s best estimate of selling price for individual elements of an arrangement when vendor specific objective evidence or third party evidence is unavailable. Additionally, it elimi-nates the residual method of revenue recognition in accounting for multiple element arrangements and expands the disclosure requirements for revenue recognition. The guidance is effective for fiscal years beginning on or after June 15, 2010. This guidance will be effective for the Company beginning April 1, 2011. The Company is currently assessing the future impact of this new accounting update to its consolidated financial statements.


In October 2009, the FASB amended the accounting standards for revenue arrangements with software elements. The amended guidance modifies the scope of the software revenue recognition guidance to exclude tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality. The pronouncement is effective for fiscal years beginning on or after June 15, 2010. This guidance must be adopted in the same period an entity adopts the amended revenue arrangements with multiple elements guidance described above.

NOTE 4. MARKETABLE SECURITIES

The aggregate value, amortized cost, gross unrealized gains, and gross unrealized losses on available-for-sale marketable securities are as follows (in thousands):

As of March 31, 2011

Fair

Value

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

U.S. government agency obligations $ 23,721 $ 24,042 $ 164 $ 485

Tax exempt obligations of other states 62,458 62,310 1,109 961

$ 86,179 $ 86,352 $ 1,273 $1,446

As of March 31, 2010

Fair

Value

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

U.S. government agency obligations $ 11,956 $ 11,630 $ 326 $ —

Washington, D.C. tax exempt obligations 2,521 2,506 15 —

Tax exempt obligations of other states 37,205 35,902 1,485 182

$ 51,682 $50,038 $1,826 $ 182

The following table summarizes marketable securities maturities (in thousands):As of March 31, 2011

Fair

Market

Value

Amortized

Cost

Matures in less than 1 year $ — $ —

Matures after 1 year through 5 years 34,783 33,616

Matures after 5 years through 10 years 51,396 52,736

$ 86,179 $86,352

The gross realized gains on sales of available-for-sale investments were $21,000 in the fiscal year ended March 31, 2009. The gross realized losses on sales of available-for-sale investments were $23,000 and $124,000 for the fiscal years ended March 31, 2010, and 2011, respectively.

The weighted average maturity on all marketable securities held by the Company as of March 31, 2011 was approximately 5.3 years. Pre-tax net unrealized losses on the Company’s investments of $0.2 million as indicated above were caused by the increase in market interest rates compared to the average interest rate of the Company’s marketable securities portfolio. Of this amount, none is related to investments that mature before March 31, 2012. The Company purchased certain of its investments at a premium or discount to their relative fair values, and the contractual cash flows of these investments are guaranteed by an agency of the U.S. government or otherwise fully insured. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. The Company does not intend to sell these investments and it is not more likely than not that it will be required to sell the investments before recovery of the amortized cost bases, which may be maturity; therefore, the Company does not consider these investments to be other than temporarily impaired as of March 31, 2011. The Company has reflected the net unrealized gains and losses, net of tax, in accumu-lated other comprehensive income in the consolidated balance sheets. The Company uses the specific identification method to determine the cost of marketable securities that are sold.


NOTE 5. ACQUISITIONS

CieloOn February 1, 2011, the Company acquired substantially all the assets of Cielo MedSolutions, LLC (“Cielo”), a leading provider of population management analytics and patient registry software in the ambulatory environment. The Company acquired Cielo to enhance its existing suite of physician performance management solutions through the addition of analytics and workflow tools that give providers visibility across a patient population to enable appropriate clinical decisions. The total purchase price of $11.7 million consisted of an initial payment of $7.3 million of cash and the fair value of estimated additional contingent payments of $4.4 million. These additional contingent payments will become due and payable to the former owners of the Cielo business if certain product development and subscription milestones are met over the evaluation periods beginning at the acquisition date extending through July 31, 2012. The Company allocated $3.8 million to intangible assets with a weighted average amortization period of five years and allocated $8.1 million to goodwill, which represents synergistic benefits expected to be generated from scaling Cielo’s offerings across the Company’s large membership base. Goodwill is deductible for tax purposes.

The total purchase price was allocated to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values as of February 1, 2011. The Company’s fair value of identifiable tangible and intangible assets was determined by management taking into account a valuation using an income approach from a market participant perspective, and estimates and assumptions provided by management. Of the total estimated purchase price, $0.4 million was allocated to acquired assets, $0.4 million was allocated to assumed liabilities, and $3.8 million was allocated to intangible assets which consist of the value assigned to acquired technology related intangibles of $3.0 million, and customer relationships and employee related intangibles of $0.8 million.

Acquisition related transaction costs of $0.4 million, including actual and estimated legal, accounting, and other professional fees directly related to the acquisition, are included in general and administrative expenses on the accompanying consolidated statements of income for the fiscal year ended March 31, 2011. The financial results of Cielo are included in the Company’s consolidated financial statements from the date of acquisition. Pro forma finan-cial information for this acquisition has not been presented because the effects were not material to the Company’s historical consolidated financial statements.

ConcuityOn April 1, 2010, the Company acquired for cash, all outstanding shares of the health care division of Trintech Group plc (“Concuity”), a leading provider of a contract and payment management solution for hospitals and physician groups. The Company acquired Concuity to supplement its revenue-cycle portfolio by incorporating Concuity’s web-based ClearContracts software tool into a new program. The total purchase price consisted of an initial payment of $34.0 million. The Company allocated $11.3 million to intangible assets with a weighted average amortization period of five years. Approximately $21.8 million was allocated to goodwill, which represents synergistic benefits expected to be generated from scaling Concuity’s offerings across the Company’s large membership base. Goodwill is deductible for tax purposes.

Purchase price allocationThe total purchase price was allocated to Concuity’s tangible and separately identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of April 1, 2010. The total purchase price was allocated as set forth below (in thousands):

Unbilled accounts receivable $ 3,207

Accounts receivable 529

Other assets 4,199

Acquired developed technology 6,250

Customer related intangible assets 4,000

Employee related intangible assets 500

Trademarks 500

Goodwill 21,808

Current liabilities (1,339)

Contingent earn-out liability (4,000)

Deferred revenue (1,670)

Total purchase price, net of cash acquired $ 33,984


The Company’s fair value of identifiable intangible assets was determined by management taking into account a valuation using an income approach from a market participant perspective, and estimates and assumptions provided by management. The acquired developed technology, customer related intangible assets, employee related intangi-ble assets, and trademarks have estimated lives of 5.0 years, 5.0 years, 5.0 years, and 4.0 years, respectively, which is consistent with the cash flow estimates used to create the valuation models of each identifiable asset. The acquired developed technology, customer related intangible assets, employee related intangible assets, and trademarks are included in intangible assets, net on the March 31, 2011 consolidated balance sheet. The excess of the purchase price over the net tangible and identifiable intangible assets has been recorded as goodwill.

Acquisition related transaction costs of $1.1 million, including legal, accounting, and other professional fees directly related to the acquisition, are included in general and administrative expenses on the accompanying consolidated statements of income for the fiscal year ended March 31, 2010. The financial results of Concuity are included in the Company’s consolidated financial statements from the date of acquisition. Pro forma financial information for this acquisition has not been presented because the effects were not material to the Company’s historical consolidated financial statements.

SouthwindOn December 31, 2009, the Company acquired substantially all of the assets of Southwind Health Partners, L.L.C. and Southwind Navigator, LLC, together a leading health care industry management and advisory firm focused on hospital-physician integration and physician practice management. The $16.9 million total purchase price consisted of $11.1 million of cash paid to the Southwind equity holders, net of $0.2 million in cash acquired, and the fair value of estimated additional contingent payments of $5.6 million, of which a portion is payable in shares of the Company’s common stock and was recorded as a liability as of March 31, 2010 and 2011. These additional contingent payments will become due and payable to the former owner of the Southwind business if certain milestones are met over the evaluation periods beginning at the acquisition date and extending through December 31, 2014. A $1.5 million upward adjustment was made to the fair value of the contingent liabilities during the year ended March 31, 2011. This adjust-ment was recorded in cost of services on the accompanying consolidated statements of income and increased the liability to $7.1 million as of March 31, 2011. See Note 10, “Fair value measurements” for further details.

The total purchase price was allocated to the assets acquired, including intangible assets and liabilities assumed, based on their estimated fair values as of December 31, 2009. The Company’s fair value of identifiable tangible and intangible assets was determined by management taking into account a valuation using an income approach from a market participant perspective, and estimates and assumptions provided by management. Of the total estimated purchase price, $2.3 million was allocated to acquired assets, $1.9 million was allocated to assumed liabilities, and $5.6 million was allocated to intangible assets which consist of the value assigned to customer related intangibles, primarily customer relationships and trademarks, of $5.5 million, and employee related intangibles of $0.1 million. The acquired customer and employee related intangibles have estimated lives ranging from six months to nine years based on the cash flow estimates used to create the valuation models of each identifiable asset with a weighted average amortization period of 7.2 years. Approximately $10.9 million was allocated to goodwill, which represents synergistic benefits expected to be generated from scaling Southwind’s offerings across the Company’s large membership base. Goodwill is deductible for tax purposes.

Acquisition related transaction costs of $0.5 million, including actual and estimated legal, accounting, and other professional fees directly related to the acquisition, are included in general and administrative expenses on the accompanying consolidated statements of income for the fiscal year ended March 31, 2010. The financial results of Southwind are included in the Company’s consolidated financial statements from the date of acquisition. Pro forma financial information for this acquisition has not been presented because the effects were not material to the Company’s historical consolidated financial statements.

NOTE 6. OTHER NON-CURRENT ASSETS

In June 2009, the Company invested in the convertible preferred stock of a private company that provides tech-nology tools and support services to health care providers. In addition, the Company entered into a licensing agree-ment with that company. The convertible preferred stock investment is recorded at cost, and the carrying amount of this investment as of March 31, 2011 is $5.0 million and is included in other non-current assets on the Company’s consolidated balance sheets. The convertible preferred stock carries a dividend rate of 8% that is payable if and when declared by its board of directors, none of which have been declared by the investee and recorded by the Company. This investment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of this asset may not be recoverable. The Company believes that no such impairment indicators existed during the fiscal years ended March 31, 2010 or 2011.


NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment consists of leasehold improvements, furniture, fixtures, equipment, capitalized internal software development costs, and acquired developed technology. Property and equipment is stated at cost, less accumulated depreciation and amortization. In certain of its membership programs, the Company provides software tools under hosting arrangements where the software application resides on the Company’s or its service providers’ hardware. The members do not take delivery of the software and only receive access to the software tools during the term of their membership agreement. Software development costs that are incurred in the preliminary project stage are expensed as incurred. During the development stage, direct consulting costs and payroll-related costs for employees that are directly associated with each project are capitalized and amortized over the estimated useful life of the software once placed into operation. Capitalized software is amortized using the straight-line method over its estimated useful life, which is generally five years. Replacements and major improvements are capitalized, while maintenance and repairs are charged to expense as incurred.

The acquired developed technology is classified as software within property and equipment because the developed software application resides on the Company’s or its service providers’ hardware. Amortization for acquired developed software is included in depreciation and amortization of property and equipment on the Company’s consolidated statements of income. Acquired developed software is amortized over its weighted average estimated useful life of approximately seven years based on the cash flow estimate used to determine the value of the asset. The amount of acquired developed software amortization included in depreciation and amortization of property and equipment for the fiscal years ended March 31, 2009, 2010, and 2011 was approximately $0.3 million, $0.3 million, and $0.4 million, respectively.

Furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful lives of the assets or the lease term. There are no capitalized leases included in property and equipment for the periods presented. Property and equipment consists of the following (in thousands):

As of March 31,

2010 2011

Leasehold improvements $ 15,270 $ 15,734

Furniture, fixtures and equipment 16,242 18,472

Software 19,865 30,524

51,377 64,730

Accumulated depreciation and amortization (29,194) (35,201)

Property and equipment, net $ 22,183 $ 29,529

The Company evaluates its long-lived assets for impairment when changes in circumstances exist that suggests the carrying value of a long-lived asset may not be fully recoverable. If an indication of impairment exists, and the Company’s net book value of the related assets is not fully recoverable based upon an analysis of its estimated undiscounted future cash flows, the assets are written down to their estimated fair value. The Company did not recognize any impairment losses on any of its long-lived assets during the fiscal years ended March 31, 2011 or March 31, 2009. As of September 30, 2009, the Company concluded that certain capitalized software development costs were not fully recoverable. As a result, the Company recognized a pre-tax impairment charge on capitalized software of $7.4 million during the three months ended September 30, 2009. For further discussion of the impairment and the valuation method used, see Note 10, “Fair value measurements.”

NOTE 8. GOODWILL AND OTHER INTANGIBLES

Included in the Company’s goodwill and other intangibles balances are goodwill and acquired intangibles and internally developed capitalized software for sale. Goodwill is not amortized as it has an estimated infinite life. Goodwill is reviewed for impairment at least annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes that no such impair-ment indicators existed during the fiscal years ended March 31, 2009, 2010, and 2011. There was no impairment of goodwill recorded in the fiscal years ended March 31, 2009, 2010, or 2011.


Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives which range from six months to ten years. As of March 31, 2011, the weighted average remaining useful life of acquired intangibles was approximately 4.9 years. As of March 31, 2011, the weighted average remaining useful life of internally developed intangibles was approximately 4.0 years.

The gross and net carrying balances and accumulated amortization of other intangibles are as follows (in thousands):

As of March 31, 2010 As of March 31, 2011

Gross

Carrying

Amount

Accumulated

Amortization

Net

Carrying

Amount

Gross

Carrying

Amount

Accumulated

Amortization

Net

Carrying

Amount

Other Intangibles

Internally developed intangible for sale:

Capitalized software $ 2,715 $ (553) $ 2,162 $ 4,695 $ (1,173) $ 3,522

Acquired intangibles:

Developed software 738 (723) 15 6,988 (1,988) 5,000

Customer relationships 3,600 (100) 3,500 8,200 (1,320) 6,880

Trademarks 1,500 (75) 1,425 2,000 (500) 1,500

Non-compete agreements 100 (25) 75 750 (205) 545

Customer contracts 3,713 (1,729) 1,984 3,713 (2,710) 1,003

Total other intangibles $12,366 $(3,205) $ 9,161 $26,346 $(7,896) $18,450

Amortization expense for other intangible assets for the fiscal years ended March 31, 2009, 2010, and 2011, recorded in cost of services on the accompanying consolidated statements of income, was approximately $1.0 million, $1.6 million, and $4.7 million, respectively. The following approximates the anticipated aggregate amortization expense to be recorded in cost of services on the consolidated statements of income for each of the following five fiscal years ending March 31, 2012 through 2016: $4.2 million, $4.0 million, $4.0 million, $3.6 million, and $0.8 million, respectively, and $1.4 million thereafter.

NOTE 9. MEMBERSHIP FEES RECEIVABLE

Membership fees receivable consist of the following (in thousands):As of March 31,

2010 2011

Billed fees receivable $ 36,827 $ 38,055

Unbilled fees receivable 110,238 145,992

147,065 184,047

Allowance for uncollectible revenue (3,612) (4,885)

Membership fees receivable, net $ 143,453 $ 179,162

Billed fees receivable represent invoiced membership fees. Unbilled fees receivable represent fees due to be billed to members who have elected to pay on an installment basis and all of the unbilled fees recorded are expected to be billed in the next twelve months.

NOTE 10. FAIR VALUE MEASUREMENTS

Financial assets and liabilitiesThe estimated fair values of financial instruments are determined based on relevant market information. These estimates involve uncertainty and cannot be determined with precision. The Company’s financial instruments consist primarily of cash, cash equivalents, and marketable securities. The following methods and assumptions are used to estimate the fair value of each class of financial assets or liabilities that are valued on a recurring basis.

Cash and cash equivalentsThis includes all cash and liquid investments with an original maturity of three months or less from the date acquired. The carrying amount approximates fair value because of the short maturity of these instruments. Cash equivalents consist of money market funds with original maturity dates of less than three months for which the fair value is based on quoted market prices. The Company’s cash and cash equivalents are held at major commercial banks.


Marketable securitiesThe Company’s marketable securities, consisting of U.S. government agency obligations and various state tax-exempt notes and bonds, are classified as available-for-sale and are carried at fair market value based on quoted market prices.

Contingent earn-out liabilitiesThis represents the Company’s estimated fair value of the contingent earn-out liabilities related to acquisitions based on probability assessments of certain performance achievements during the earn-out periods. Contingent earn-out liabilities are included in other long-term liabilities on the accompanying consolidated balance sheets. See Note 5, “Acquisitions” for further details.

MeasurementsFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The valuation can be determined using widely accepted valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). As a basis for applying a market-based approach in fair value measurements, GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Observable market-based inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3—Unobservable inputs that are supported by little or no market activity, such as discounted cash flow methodologies.

The Company’s population of financial assets and liabilities subject to fair value measurements on a recurring basis and the necessary disclosures are as follows (in thousands):

Fair Value as

of March 31,

Fair Value Measurement

as of March 31, 2011

Using Fair Value Hierarchy

2011 Level 1 Level 2 Level 3

Financial assets

Cash and cash equivalents(1) $30,378 $ 30,378 $— $ —

Available-for-sale marketable securities(2) 86,179 86,179 — —

Financial liabilities

Contingent earn-out liabilities(3) 15,500 — — $ 15,500

Fair Value as

of March 31,

Fair Value Measurement

as of March 31, 2010

Using Fair Value Hierarchy

2010 Level 1 Level 2 Level 3

Financial assets

Cash and cash equivalents(1) $ 61,238 $ 61,238 $— $ —

Available-for-sale marketable securities(2) 51,682 51,682 — —

Financial liabilities

Contingent earn-out liabilities(3) 5,600 — — 5,600

(1) Fair value is based on quoted market prices.

(2) Fair value is determined using quoted market prices of the assets. For further detail, see Note 4, “Marketable securities.”

(3) This fair value measurement is based on unobservable inputs that are supported by little or no market activity and reflect the Company’s

own assumptions in measuring fair value using the income approach. In developing these estimates, the Company considered certain performance

projections, historical results, and general macro-economic environment and industry trends.


The Company’s fair value estimate of the Southwind earn-out liability was $5.6 million as of the date of acquisition. The final amount paid will be made in a combination of cash and/or the Company’s common stock. The Company’s fair value estimate of the Concuity earn-out liability, which is payable in cash, was $4.0 million as of the date of acqui-sition. The Company’s fair value estimate of the Cielo earn-out liability, which is payable in cash, was $4.4 million as of the date of acquisition. Changes in the fair value of the contingent earn-out liabilities subsequent to the acquisition date, including changes arising from events that occurred after the acquisition date, such as changes in the Company’s estimate of performance achievements and discount rates, are recognized in earnings in the periods when the esti-mated fair value changes. The following table represents a reconciliation of the change in the contingent earn-out liabilities for the fiscal years ended March 31, 2009, 2010 and 2011 (in thousands):

As of March 31,

2009 2010 2011

Beginning balance: $— $5,600 $ 5,600

Fair value change in Southwind contingent earn-out liability(1) — — 1,500

Addition of Concuity contingent earn-out liability — — 4,000

Addition of Cielo contingent earn-out liability — — 4,400

Ending balance $— $5,600 $ 15,500

(1) Amounts were recognized in cost of services on the accompanying consolidated statements of income.

Non-financial assets and liabilitiesCertain assets and liabilities are measured at fair value on a non-recurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). As of September 30, 2009, the Company concluded that certain capital-ized software development costs were not fully recoverable based on projected cash flows attributable to those assets. As a result, certain assets held and used with a carrying amount of $8.8 million as of September 30, 2009 were written down to a fair value of $1.4 million, resulting in a pre-tax impairment charge of $7.4 million. The Company utilized the discounted cash flow method to determine the fair value of the capitalized software assets as of September 30, 2009. Cash flows were determined based on the Company’s estimates of future operating results and discounted using an internal rate of return consistent with that used by the Company to evaluate cash flows of other assets of a similar nature. Due to the significant unobservable inputs inherent in discounted cash flow methodologies, this method is classified as Level 3 in the fair value hierarchy. For additional information related to this impairment, see Note 7, “Property and equipment.”

During the fiscal years ended March 31, 2011 and March 31, 2009, no fair value adjustments or material fair value measurements were required for non-financial assets or liabilities.

NOTE 11. STOCK-BASED COMPENSATION

Equity incentive plansThe Company issues awards, including stock options and restricted stock units (“RSUs”), under the Company’s 2005 Stock Incentive Plan (the “2005 Plan”), the 2009 Stock Incentive Plan (the “2009 Plan”), and, through September 11, 2009, the Company’s 2006 Stock Incentive Plan (the “2006 Plan”). Upon approval of the 2009 Plan by the Company’s stockholders on September 11, 2009, the 2006 Plan was frozen with respect to new awards.

The aggregate number of shares of the Company’s common stock available for issuance under the 2005 Plan may not exceed 1,600,000, plus the shares that remained available for issuance under the Company’s 2001 Stock Incentive Plan (the “2001 Plan”) as of November 15, 2005 and shares subject to outstanding awards under the 2001 Plan that, on or after such date, cease for any reason to be subject to such awards (other than reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and non-forfeitable shares). Stock-based awards granted under the 2005 Plan have a seven year maximum contractual term. The aggregate number of shares of the Company’s common stock available for issuance under the 2009 Plan may not exceed 1,055,000, plus the shares that remained available for issuance under the 2006 Plan as of June 26, 2009 and shares subject to outstanding awards under the 2006 Plan that, on or after such date, cease for any reason to be subject to such awards (other than reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and non-forfeitable shares). Stock-based awards granted under the 2006 Plan and the 2009 Plan have a five year maximum contractual term. As of March 31, 2011, there were 638,029 shares available for issuance under the 2005 Plan and 569,151 shares available for issuance under the 2009 Plan.


The 2009 Plan and the 2005 Plan (the “Plans”) are administered by the Compensation Committee of the Company’s Board of Directors, which has the authority to determine which officers, directors, and employees are awarded options or share awards pursuant to the Plans and to determine the terms of the awards. Grants may consist of treasury shares or newly issued shares. Options are rights to purchase common stock of the Company at the fair market value on the date of grant. The exercise price of a stock option or other equity-based award is equal to the closing price of the Company’s common stock on the date of grant. The Company generally awards non-qualified options, but the Plans do allow for options to qualify as incentive stock options under Section 422 of the Internal Revenue Code. Holders of options do not participate in dividends, if any, until after the exercise of the award. RSUs are equity settled stock-based compensation arrangements of a number of shares of the Company’s common stock. RSU holders do not participate in dividends, if any, nor do they have voting rights until the restrictions lapse.

Stock option activityDuring the fiscal years ended March 31, 2009, 2010, and 2011, the Company granted 437,911, 950,050, and 297,500 stock options, respectively, with a weighted average exercise price of $44.64, $19.04, and $34.75, respectively. The weighted average fair values of the stock option grants are listed in the stock option valuation section below. During the fiscal years ended March 31, 2009, 2010, and 2011, participants exercised 18,625, 11,500, and 605,641 options for a total intrinsic value of $0.4 million, $0.1 million, and $9.8 million, respectively. Intrinsic value is calculated as the number of shares exercised times the Company’s stock price at exercise less the exercise price of the option.

In September 2009, certain members of the Company’s senior management and Board of Directors voluntarily surrendered an aggregate of 830,025 stock options (both vested and unvested) having exercise prices between $51.56 per share and $60.60 per share. The individuals who surrendered options received no consideration in return, and were not promised any consideration in return, such as future equity grants to replace the surrendered options. The Company does not plan to vary its equity grant practices as a result of this cancellation. The Company accelerated the remaining expense on these cancelled awards, which resulted in pre-tax charges of approximately $0.7 million recorded in cost of services, $0.1 million recorded in member relations and marketing, and $1.1 million recorded in general and administrative expense during the fiscal year ended March 31, 2010. This cancellation resulted in the reversal of $4.7 million of deferred tax assets that would no longer be realized. The reversal of these deferred tax assets resulted in a decrease to additional paid-in capital as the Company has a sufficient pool of excess tax benefits.

Restricted stock unit activityDuring the fiscal years ended March 31, 2009, 2010, and 2011, the Company granted 158,933, 76,500, and 266,314 RSUs, respectively. The valuation of RSUs is determined as the fair market value of the underlying shares on the date of grant. The weighted average grant date fair value of RSUs granted for the fiscal years ended March 31, 2009, 2010, and 2011 was $44.76, $18.52, and $33.85, respectively. During the fiscal years ended March 31, 2009, 2010, and 2011, participants vested in 90,755, 115,839, and 120,378 RSUs, respectively, for a total intrinsic value of $1.5 million, $3.6 million, and $5.4 million, respectively. Intrinsic value is calculated as the number of shares vested times the Company’s closing stock price at the vesting date. Of the 120,378 RSUs vested in the fiscal year ended March 31, 2011, 36,339 shares were withheld to satisfy minimum employee tax withholding.

There were 199,956 RSUs outstanding as of March 31, 2011. During the fiscal year ended March 31, 2011, 20,000 RSUs were forfeited. The weighted average fair value of RSUs granted during the fiscal year ended March 31, 2011 was $33.85, the majority of which vest in four equal annual installments on the anniversary of the grant date.

Employee stock purchase planThe Company sponsors an employee stock purchase plan (“ESPP”) for all eligible employees. Under the ESPP, employees authorize payroll deductions from 1% to 15% of their eligible compensation to purchase shares of the Company’s common stock. Under the ESPP, shares of the Company’s common stock may be purchased at the end of each fiscal quarter at 95% of the closing price of the Company’s common stock. A total of 842,000 shares of the Company’s common stock are authorized under the ESPP. As of March 31, 2011, a total of 755,232 shares were available for issuance under the ESPP. During the fiscal years ended March 31, 2009, 2010, and 2011, the Company issued 14,844, 5,573, and 4,336 shares, respectively. under the ESPP at an average price of $23.82, $26.68, and $44.23 per share, respectively. The compensation expense related to the ESPP recorded in the fiscal years ended March 31, 2009, 2010, and 2011 was not material.


Valuation assumptions and equity based award activityAs discussed in Note 3, “Summary of significant accounting policies,” determining the estimated fair value of stock-based awards is judgmental in nature and involves the use of significant estimates and assumptions, including the term of the stock-based awards, risk-free interest rates over the vesting period, expected dividend rates, the price volatility of the Company’s shares, and forfeiture rates of the awards.

Stock option valuationThe Company calculates the fair value of all stock option awards, with the exception of the stock options issued with market-based conditions, on the date of grant using the Black-Scholes model. The expected term for its stock options was determined through analysis of historical data on employee exercises, vesting periods of awards, and post-vesting employment termination behavior. The risk-free interest rate is based on U.S. Treasury bonds issued with similar life terms to the expected life of the grant. Volatility is calculated based on historical volatility of the daily closing price of the Company’s common stock continuously compounded with a look back period similar to the terms of the expected life of the grant. The Company has not declared or paid any cash dividend on its common stock since the closing of its initial public offering and does not currently anticipate declaring or paying any cash dividends. The timing and amount of future cash dividends, if any, is periodically evaluated by the Company’s Board of Directors and would depend upon, among other factors, the Company’s earnings, financial condition, and cash requirements.

The following average key assumptions were used in the valuation of stock options granted in each respective period:


2009 2010 2011(1)

Stock option grants:

Risk-free interest rate 2.80%–3.28% 1.44%–2.19% 0.8%–2.56%

Expected lives in years 4.0 4.0 3.9

Expected volatility 28.0%–31.0% 35.8%–41.9% 36.7% –42.1%

Dividend yield 0.0% 0.0% 0.0%

Weighted average exercise price of options granted $44.64 $19.04 $34.75

Weighted average grant date fair value of options granted $ 12.08 $ 6.01 $ 11.27

Number of shares granted 437,911 950,050 297,500

(1) Includes 45,000 stock options that were issued with market-based conditions to an employee. The Company calculated the fair value of these stock

option awards. The options were valued on the date of grant at $9.82 per share using a lattice option-pricing model. The significant assumptions

used were as follows: risk-free interest rate of 1.71%; expected term of 3.3 years; expected volatility of 38.35%; dividend yield of 0.0%; and a

weighted average exercise price of $34.27 per share.

The following table summarizes the changes in common stock options during the fiscal year ended March 31, 2011 for all of the stock incentive plans described above.

Number

of Options

Weighted Average

Exercise Price

Weighted Average

Remaining

Contractual Term(In years)

Aggregate

Intrinsic

Value(In thousands)

Outstanding, March 31, 2008 2,445,979 $ 42.17

Granted 437,911 $44.64

Exercised (18,625) $ 22.48

Forfeited (29,500) $ 37.88


Granted 950,050 $ 19.04

Exercised (11,500) $ 18.58

Forfeited (75,085) $ 47.37

Cancellations (830,365) $ 53.14


Granted 297,500 $ 34.75

Exercised (605,641) $ 29.35

Forfeited (31,125) $ 43.15

Outstanding, March 31, 2011 2,529,599 $ 32.79 3.52 $47,876

Exercisable 1,494,709 $ 37.32 3.19 $21,247


The aggregate intrinsic value in the table above is the sum of the amounts by which the quoted market price of our common stock exceeded the exercise price of the options as of March 31, 2011, for those options for which the quoted market price was in excess of the exercise price. This amount changes over time based on changes in the fair market value of the Company’s stock. During the fiscal years ended March 31, 2009, 2010, and 2011, 683,952, 173,413, and 311,990 options, respectively, vested with fair values of $6.1 million, $1.7 million, and $2.5 million, respectively.

Valuation for restricted stock unitsRSUs are valued at the grant date closing price of the Company’s common stock as reported by The NASDAQ Stock Market LLC (“NASDAQ”).

Valuation for employee stock purchase rightsThe value of employee stock purchase rights for shares of stock purchased under the ESPP is determined as the fair market value of the underlying shares on the date of purchase as determined by the closing price of the Company’s common stock as recorded by NASDAQ, less the purchase price, which is 95% of the closing price of the Company’s common stock. The ESPP enrollment begins on the first day of the quarter. Stock purchases occur on the last day of the quarter, with only eligible employee payroll deductions for the period used to calculate the shares purchased. There is no estimate of grant date fair value or estimated forfeitures since actual compensation expense was recorded in the period on the purchase date. The fair value of employee stock purchase rights is equivalent to a 5% discount of the purchase date closing price.

ForfeituresForfeitures are estimated based on historical experience at the time of grant and adjusted, if necessary, in subse-quent periods if actual forfeitures differ from those estimates. Stock-based compensation expense is recognized on a straight-line basis, net of an estimated forfeiture rate, for only those shares expected to vest over the requisite service period of the award, which is generally the option vesting term and can range from six months to four years. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

Compensation expenseThe Company recognized stock-based compensation expense in the following consolidated statements of income line items for stock options and RSUs and for shares issued under the Company’s ESPP, for the fiscal years ended March 31, 2009, 2010, and 2011 (in thousands, except per share amounts):


2009 2010 2011


Costs and expenses:

Cost of services $ 4,273 $ 3,930 $ 2,763

Member relations and marketing 2,436 2,248 1,663

General and administrative 5,738 5,974 4,366

Depreciation — — —



Net income $ (8,464) $ (7,984) $ (5,725)

Impact on diluted earnings per share $ (0.51) $ (0.51) $ (0.35)

There are no stock-based compensation costs capitalized as part of the cost of an asset.

Stock-based compensation expense by award type is below (in thousands):Year Ended March 31,

2009 2010 2011

Stock-based compensation expense by award type:

Stock options $ 7,209 $ 6,287 $ 3,590

Restricted stock units 5,179 5,857 5,202

Employee stock purchase rights 59 8 —

Total stock-based compensation $ 12,447 $ 12,152 $ 8,792

As of March 31, 2011, $14.2 million of total unrecognized compensation cost related to stock-based compensation is expected to be recognized over a weighted average period of 1.3 years.


Tax benefitsThe benefits of tax deductions in excess of recognized book compensation expense are reported as a financing cash inflow in the accompanying consolidated statements of cash flows. Approximately $0.3 million, $0, and $2.6 million of tax benefits associated with the exercise of employee stock options and restricted stock units were recorded as cash from financing activities in the fiscal years ended March 31, 2009, 2010, and 2011, respectively.

NOTE 12. ACCUMULATED OTHER COMPREHENSIVE INCOME

The accumulated elements of other comprehensive income, net of tax, included within stockholders’ equity on the consolidated balance sheets are composed solely of net unrealized gains and losses on marketable securities net of applicable income taxes.

NOTE 13. INCOME TAXES

The provision for income taxes consists of the following (in thousands):Year Ended March 31,

2009 2010 2011

Current $ 6,482 $ 14,105 $ 11,441

Deferred 3,635 (8,136) (1,511)

Provision for income taxes $ 10,117 $ 15,969 $ 9,930

The provision for income taxes differs from the amount of income taxes determined by applying the applicable income tax statutory rates to income before provision for income taxes as follows:


2009 2010 2011

Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%

State income tax, net of U.S. federal income tax benefit 2.2 5.7 5.5

Tax-exempt interest income (1.6) (2.7) (1.5)

D.C. QHTC income tax credits (5.0) (9.1) (7.3)

Other permanent differences, net 1.4 5.4 3.2

Effective tax rate 32.0% 34.3% 34.9%

Deferred income taxes are provided for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. The tax effect of these temporary differences is presented below (in thousands):

As of March 31,

2010 2011

Deferred income tax assets (liabilities):

Tax credit carryforwards $ 6,818 $ 7,775

Deferred compensation accrued for financial reporting purposes 4,885 5,515

Stock-based compensation 6,487 6,831

Reserve for uncollectible revenue 1,550 1,980

Depreciation — 270

Acquired intangibles — 298

Unrealized losses on available-for-sale securities — 61

Other 918 295

Total deferred tax assets 20,658 23,025

Capitalized software development costs (3,157) (4,584)

Acquired intangibles (1,529) —

Deferred incentive compensation and other deferred charges (1,769) (2,901)

Unrealized gains on available-for-sale securities (557) —

Depreciation (235) —

Total deferred tax liabilities (7,247) (7,485)

Net deferred income tax assets $ 13,411 $ 15,540


In estimating future tax consequences, the Company generally considers all expected future events in the deter-mination and evaluation of deferred tax assets and liabilities. The Company believes that its estimated future taxable income will be sufficient for the full realization of its deferred income tax assets. The effect of future changes in existing laws or rates is not considered in the determination and evaluation of deferred tax assets and liabilities until the new tax laws or rates are enacted.

The Company uses a more-likely-than-not recognition threshold based on the technical merits of the tax position taken for the financial statement recognition and measurement of a tax position. If a tax position does not meet the more-likely-than-not initial recognition threshold, no benefit is recorded in the financial statements. The Company does not currently anticipate that the total amounts of unrecognized tax benefits (of which the amount was $0 as of March 31, 2011) will significantly change within the next 12 months. The Company classifies interest and penalties on any unrecognized tax benefits as a component of the provision for income taxes. No interest or penalties were recognized in the consolidated statements of income for the fiscal years ended March 31, 2009, 2010, or 2011. The Company files income tax returns in U.S. federal and state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, and local tax examinations for filings in major tax jurisdictions before 2007.

Washington, D.C. income tax incentivesThe Office of Tax and Revenue of the Government of the District of Columbia (the “Office of Tax and Revenue”) pro-vides regulations that modify the income and franchise tax, sales and use tax, and personal property tax regulations for Qualified High Technology Companies (“QHTC”) doing business in the District of Columbia.

In February 2006, the Company received notification from the Office of Tax and Revenue that its certification as a QHTC under the New E-conomy Transformation Act of 2000 had been accepted effective as of January 1, 2004. As a QHTC, the Company’s Washington, D.C. statutory income tax rate was 0.0% through calendar year 2008 and 6.0% thereafter, versus 9.975% prior to this qualification. Under that Act, the Company is also eligible for certain Washington, D.C. income tax credits and other benefits. As of March 31, 2011, the Company has $12.2 million of Washington, D.C. tax credits which have expiration rates ranging from 2016 to 2021.

NOTE 14. STOCKHOLDERS’ EQUITY

In April 2008, the Company’s Board of Directors authorized an increase in its cumulative share repurchase program to $350 million of the Company’s common stock. The Company repurchased 2,051,225, 146,179, and 188,930 shares of its common stock at a total cost of approximately $61.5 million, $4.0 million, and $8.3 million in the fiscal years ended March 31, 2009, 2010, and 2011, respectively, pursuant to its share repurchase program. All repurchases to date have been made in the open market. No minimum number of shares subject to repurchase has been fixed and the share repurchase authorization has no expiration date. As of March 31, 2011, the remaining authorized repurchase amount was $33.7 million.

As of March 31, 2011 and March 31, 2010, the Company had repurchased 7,520,671 and 7,331,741 shares of the Company’s common stock, respectively, at a total cost of $316.3 million and $308.0 million, respectively. Of these repurchased shares, 1,000,000 shares have been retired.

NOTE 15. COMMITMENTS AND CONTINGENCIES

Operating leasesThe Company leases its headquarters space (the “Lease”) under an operating lease that expires in 2019. Leasehold improvements related to the Lease are depreciated over the term of the Lease and totaled approximately $11.0 million, net, and $10.0 million, net, as of March 31, 2010 and 2011, respectively. The terms of the Lease contain provisions for rental escalation, and the Company is required to pay its portion of executory costs such as taxes, insurance, and operating expenses. The Company also leases (under operating leases) small office spaces in Portland, Oregon; Austin, Texas; Nashville, Tennessee; Vernon Hills, Illinois; San Francisco, California; Ann Arbor, Michigan and Chennai, India. The Oregon lease expires in June 2016, the Texas lease in October 2019, the Tennessee lease in September 2017, the Illinois lease in September 2014, the California lease in November 2012, the Michigan lease in December 2012, and the India lease in December 2016. The Company recognized rental and executory expenses of $8.5 million, $9.3 million, and $9.4 million in the fiscal years ended March 31, 2009, 2010, and 2011, respectively, related to these leases.


The following table details the future minimum lease payments under the Company’s current leases, excluding rental escalation and executory costs (in thousands):

Year Ending March 31,

2012 $ 8,288

2013 9,318

2014 9,573

2015 9,242

2016 9,413

Thereafter 27,822

Total $73,656

Purchase obligationsThe Company has entered into an agreement for the purchase of software development services which is not cancelable. As of March 31, 2011, the Company’s obligation in connection with this agreement runs through November 2013, and the payments expected to be made under this agreement total $3.0 million during that period. No purchases have been made under this arrangement as of March 31, 2011.

Credit facilityIn November 2006, the Company entered into a $20 million revolving credit facility with a commercial bank that can be used for working capital, share repurchases, or other general corporate purposes. Borrowings under the credit facility, if any, will be collateralized by certain of the Company’s marketable securities and will bear interest at an amount based on the published LIBOR rate. The Company is also required to maintain an interest coverage ratio for each of its fiscal years of not less than three to one. The Company was in compliance with this financial covenant for the fiscal year ended March 31, 2011. The credit facility renews automatically each year until October 31, 2011, and can be increased at the request of the Company by as much as $10 million per year up to an aggregate maximum increase of $50 million. The Company has not requested any increases in the credit facility and there have been no borrowings under the facility. The amount available for borrowing as of March 31, 2011 was $20 million.

Benefit planThe Company sponsors a defined contribution 401(k) plan (the “401(k) Plan”) for all employees who have reached the age of twenty-one. The Company provides discretionary contributions in the range of 0% to 100%, which percentage is determined by the Company after the end of the applicable plan year, of an employee’s contribution up to a maxi-mum of 4% of base salary. During the period from March 1, 2009 to December 31, 2009, the Company suspended its discretionary contributions to the 401(k) Plan. Contributions to the 401(k) Plan for the fiscal years ended March 31, 2009, 2010, and 2011 were approximately $1.0 million, $0.3 million, and $2.2 million, respectively.

LitigationFrom time to time, the Company is subject to ordinary routine litigation incidental to its normal business operations. The Company is currently not a party to, and its property is not subject to, any material legal proceedings.

NOTE 16. SEGMENTS AND GEOGRAPHIC AREAS

Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker of an enterprise. The Company has one reportable segment for financial statement purposes. For additional detail on the Company’s determination of segments, see Note 3, “Summary of significant accounting policies for additional information.”

Substantially all of the Company’s identifiable assets are located in the United States. Disclosed in the following table is revenue information for each geographic area for the years ended March 31, 2009, 2010, and 2011 (in thousands):


2009 2010 2011

United States $ 223,497 $ 229,389 $ 280,273

Other countries 6,863 9,934 9,975

Total revenue $ 230,360 $ 239,323 $ 290,248


NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)

Unaudited summarized financial data by quarter for the fiscal years ended March 31, 2010 and 2011 is as follows (in thousands, except per share amounts):

Fiscal 2010 Quarter Ended

June 30, September 30, December 31, March 31,

Revenue $ 56,703 $58,323 $60,893 $63,404

Income (loss) from operations(1) 5,412 (3,804) 5,955 7,499

Income (loss) before provision for income taxes(1) 6,374 (3,220) 6,558 7,690

Net income (loss) $ 4,188 $ (2,116) $ 4,309 $ 5,052

Earnings per share:

Basic $ 0.27 $ (0.14) $ 0.28 $ 0.33

Diluted $ 0.27 $ (0.14) $ 0.27 $ 0.32

Fiscal 2011 Quarter Ended

June 30, September 30, December 31, March 31,

Revenue $66,688 $ 71,102 $ 75,210 $ 77,248

Income from operations 6,945 7,043 5,658 6,942

Income before provision for income taxes 7,166 7,620 6,138 7,530

Net income $ 4,593 $ 4,884 $ 3,934 $ 5,113

Earnings per share:

Basic $ 0.30 $ 0.31 $ 0.25 $ 0.32

Diluted $ 0.29 $ 0.30 $ 0.24 $ 0.31

(1) Includes a non-cash charge of $1.9 million associated with the cancellation of certain stock options and a $7.4 million non-cash charge resulting

from the write-off of capitalized software in the quarter ended September 30, 2009.


REPORT OF MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTINGThe Advisory Board Company and Subsidiaries

Management is responsible for the preparation and integrity of our consolidated financial statements appearing in our Annual Report. Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s estimates and judgments. All other financial information in this report has been presented on a basis consistent with the informa-tion included in our consolidated financial statements.

Management is also responsible for establishing and maintaining adequate internal control over financial reporting. We maintain a system of internal control that is designed to provide reasonable assurance as to the reliable prepara-tion and presentation of our consolidated financial statements in accordance with generally accepted accounting principles, as well as to safeguard assets from unauthorized use or disposition.

Our control environment is the foundation for our system of internal control over financial reporting and is reflected in our Code of Ethics for Employees, Code of Business Conduct and Ethics for Members of the Board of Directors and Code of Ethics for Finance Team Members. Our internal control over financial reporting is supported by formal policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations.

The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of management and the independent registered public accounting firm to review and discuss internal control over financial reporting and accounting and financial reporting matters. The independent registered public accounting firm reports to the Audit Committee and accordingly has full and free access to the Audit Committee at any time.

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evalua-tion of the effectiveness of our internal control over financial reporting as of March 31, 2011 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effective-ness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of March 31, 2011.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of internal control over financial reporting, which is included herein.

Robert W. MusslewhiteChief Executive Officer and DirectorJune 14, 2011

Michael T. KirshbaumChief Financial Officer and TreasurerJune 14, 2011


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF THE ADVISORY BOARD COMPANY AND SUBSIDIARIES:

We have audited The Advisory Board Company and subsidiaries’ internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Advisory Board Company and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regard-ing the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, The Advisory Board Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Advisory Board Company and subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2011 of The Advisory Board Company and subsidiaries and our report dated June 14, 2011 expressed an unqualified opinion thereon.

Baltimore, MarylandJune 14, 2011


CORPORATE INFORMATION

Annual Report on Form 10-K and Investor Contact

The information in this annual report is a summary and should be considered along with the Company’s Annual

Report on Form 10-K for the year ending March 31, 2011.

A copy of the Company’s Form 10-K for the year ending March 31, 2011, fi led with the Securities and Exchange

Commission, is available without charge. Requests for the Annual Report on Form 10-K and other investor contacts

should be directed to Michael T. Kirshbaum, Chief Financial Offi cer, at The Advisory Board Company, 2445 M Street,

NW, Washington, DC 20037.

Common Stock Dividend Information

The common stock of The Advisory Board Company has been traded on the Nasdaq Stock Market under the symbol

ABCO since the initial public off ering on November 12, 2001. As of July 18, 2011, there were approximately 7,000

holders of the common stock, including eight stockholders of record. The Company has not declared or paid any cash

dividends on the common stock since the closing of its initial public off ering, and it does not anticipate declaring or

paying cash dividends in the foreseeable future. The timing and amount of future cash dividends, if any, is periodically

evaluated by the Company’s Board of Directors and would depend upon, among other factors, the Company’s

earnings, fi nancial condition and cash requirements.

This table sets forth, for the periods indicated, the high and low sales prices per share of the Company’s common stock as reported on the Nasdaq Stock Market.

High Low

Fiscal year ending March 31, 2010

First Quarter ................................................................. $26.06 $16.30

Second Quarter ........................................................... $27.53 $22.80

Third Quarter ............................................................... $30.65 $24.49

Fourth Quarter ............................................................. $33.37 $31.50

Fiscal year ending March 31, 2011

First Quarter ................................................................. $44.15 $31.65

Second Quarter ........................................................... $44.97 $39.74

Third Quarter ............................................................... $50.68 $44.16

Fourth Quarter ............................................................. $52.81 $46.43

Corporate Offi ce Registrar and Transfer Agent Independent Registered AccountantThe Advisory Board Company American Stock Transfer & Trust Company, LLC Ernst & Young LLP

2445 M Street, NW 6201 15th Avenue 621 East Pratt Street

Washington, DC 20037 Brooklyn, NY 11219 Baltimore, MD 21202

202-266-5600 800-937-5449



BOARD OF DIRECTORS

Frank J. Williams Executive Chairman The Advisory Board Company

Peter J. Grua † ‡ DirectorPartner, HLM Venture Partners

Robert W. MusslewhiteDirectorChief Executive Offi cer,The Advisory Board Company

Leon D. Shapiro †‡ DirectorExecutive Vice PresidentClient Operations, LogicSource

Sanju K. Bansal ‡ DirectorVice Chairman, Executive Vice President andChief Operating Offi cer, MicroStrategy Incorporated

Kelt Kindick* † ‡Lead Director Chief Financial Offi cer, Bain & Company

Mark R. Neaman* ‡ DirectorPresident and Chief Executive Offi cer, North Shore University Health System

LeAnne M. Zumwalt* ‡DirectorVice President, DaVita, Inc.

* Member of the Audit Committee of the Board of Directors † Member of the Compensation Committee of the Board of Directors‡ Member of the Governance Committee of the Board of Directors

EXECUTIVE OFFICERS AND SENIOR MANAGEMENT

Robert W. MusslewhiteChief Executive Offi cer

Frank J. WilliamsExecutive Chairman

David L. FelsenthalPresident

Seth B. BlackleyExecutive Director

Martin D. CoulterExecutive Vice President

John A. DeaneChief Executive Offi cer, Southwind

Christopher B. Denby Executive Director

Evan R. FarberGeneral Counsel and Corporate Secretary

Scott M. FassbachChief Research Offi cer,Education Advisory Board

James L. FieldExecutive Director

Michael T. KirshbaumChief Financial Offi cer

Matthew S. KlingerSenior Vice President

Nicole D. LatimerExecutive Director

J. Michelle McGeeExecutive Director

Cormac F. Miller Executive Director

Charles W. RoadesChief Research Offi cer, Health Care

Paul W. RoscoeChief Executive Offi cer,Crimson

Scott A. SchirmeierExecutive Vice President

Richard A. SchwartzExecutive Vice President

Franziska R. ShawExecutive Director

Adam R. SpiegelExecutive Director

Mary D. VanHooseChief Talent Offi cer

Washington, DC 20037 - Annual report

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